UNITED STATES
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2000
------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM __________ TO ___________
0-26321
(Commission File Number)
SAN JOAQUIN RESOURCES INC.
-----------------------------
(Exact name of small business issuer as specified in its charter)
NEVADA 98-0204105
---------------------------- --------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
53 STRATFORD PLACE, S.W. CALGARY, ALBERTA T3H 1H7
------------------------------------------- -----------
(Address of principal executive offices) (ZIP Code)
(403) 242-9703
(Issuer's Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
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
------- -------
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
As of November 3, 2000 the Registrant had 11,788,930 shares
of common stock, $0.0001 par value.
Transitional Small Business Disclosure Format (check one):
Yes No X
------- -------
<PAGE>
SAN JOAQUIN RESOURCES INC.
FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
INDEX
Part I. Financial Information:
Item 1. - Consolidated Balance Sheets -
September 30, 2000 (unaudited) and December 31, 1999........3
- Consolidated Statement of Operations (unaudited) -
Nine Months Ended September 30, 2000, Three Months
Ended September 30, 2000 and Period from Inception
(September 14, 1999) to September 30, 2000..................4
- Consolidated Statement of Cash Flows (unaudited) -
Nine Months Ended September 30, 2000 and Period from
Inception (September 14,1999) to September 30, 2000.........5
- Consolidated Statements of Stockholders' Equity
(unaudited) - Inception Through September 30, 2000..........6
- Notes to Consolidated Financial Statements..................7
Item 2. - Management's Discussion and Analysis or
Plan of Operation...........................................9
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............................12
Item 4. - Submission of Matters to a Vote of Security Holders........12
Item 5. - Other Information..........................................12
Item 6. - Exhibits and Reports on Form 8-K...........................13
Signatures....................................................................14
2
<PAGE>
SAN JOAQUIN RESOURCES INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
$ $
(UNAUDITED)
<S> <C> <C>
A S S E T S
CURRENT ASSETS
Cash 89,720 387,160
Accounts receivable and prepaids 3,266 1,038
Advance - 10,000
---------- ----------
Total current assets 92,986 398,198
INVESTMENT IN OIL AND GAS VENTURE 399,398 391,670
OIL & GAS PROPERTIES 245,045 122,590
---------- ----------
737,429 912,458
========== ==========
L I A B I L I T I E S & S T O C K H O L D E R S' E Q U I T Y
CURRENT LIABILITIES
Accounts payable and accrued liabilities 4,526 74,163
---------- ----------
Total current liabilities 4,526 74,163
---------- ----------
STOCKHOLDERS' EQUITY
Common stock, $0.0001 par value
Authorized - 1,000,000,000 shares
Issued and outstanding - 11,788,930 shares 1,179 1,177
Additional paid-in capital 994,685 984,722
(Deficit) accumulated during the development stage (262,961) (147,604)
---------- ----------
732,903 838,295
---------- ----------
737,429 912,458
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
SAN JOAQUIN RESOURCES INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
INCEPTION TO ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 2000 2000
$ $ $
<S> <C> <C> <C>
REVENUE
Interest and other income 13,276 1,335 7,492
------------- ------------- -------------
OPERATING EXPENSES
Administration and accounting 13,933 2,787 11,592
Audit and legal 60,261 8,851 39,113
Office and miscellaneous 9,215 1,389 6,220
Professional fees 155,610 19,258 60,248
Transfer agent 1,360 301 1,360
Travel 37,528 347 4,316
------------- ------------- -------------
277,907 32,933 122,849
(LOSS) FROM OPERATIONS (264,631) (31,598) (115,357)
EQUITY IN INCOME OF AFFILIATE 1,670 - -
------------- ------------- -------------
NET (LOSS) FOR THE PERIOD (262,961) (31,598) (115,357)
============= ============= =============
NET (LOSS) PER COMMON SHARE - BASIC
AND DILUTED $(0.025) $(0.003) $(0.010)
============= ============= =============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING
- BASIC AND DILUTED 10,540,955 11,772,322 11,770,107
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
SAN JOAQUIN RESOURCES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
INCEPTION TO ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 2000
$ $
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) for the period (262,961) (115,357)
Adjustments to reconcile net (loss) to
net cash (used) by operating activities
Equity in income of affiliate (1,670) -
Changes in assets and liabilities
Increase in amounts receivable and prepaids (3,266) (2,228)
Increase (decrease) in accounts payable and accrued liabilities 14,491 (59,672)
Decrease in advance - 10,000
----------- -----------
Net cash (used) by operating activities (253,406) (167,257)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in oil and gas venture (397,728) (7,728)
Additions to oil and gas properties (348,045) (155,455)
Proceeds from sale of participation agreement 103,000 33,000
----------- -----------
Net cash (used) by investing activities (642,773) (130,183)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of preferred stock 30,745 -
Proceeds from sale of common stock 960,000 -
Cash paid for offering costs (4,846) -
----------- -----------
Net cash provided by financing activities 985,899 -
----------- -----------
NET INCREASE (DECREASE) IN CASH 89,720 (297,440)
CASH - BEGINNING OF PERIOD - 387,160
----------- -----------
CASH - END OF PERIOD 89,720 89,720
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
SAN JOAQUIN RESOURCES INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
(DEFICIT)
PREFERRED STOCK COMMON STOCK ACCUMULATED
---------------------------- ------------------------------- ADDITIONAL DURING THE
PAID-IN DEVELOPMENTAL
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE
----------- ----------- ------------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Inception, September 14, 1999 - $ - - $ - $ - $ -
Sale of Series A Preferred
Shares at $0.50 per share 61,490 615 - - 30,130 -
Conversion of Series A
Preferred Shares into (61,490) (615) 6,149,000 6,149 (5,534) -
common stock
Sale of common stock at
$0.50 per share - - 1,920,000 1,920 958,080 -
Costs of offerings - - - - (4,846) -
Issuance of common stock for
acquisition of San Joaquin - - - (7,262) 7,262 -
Recapitalization of shares
issued by LEK prior to merger - - 3,700,000 370 (370) -
Net (loss) for the period - - - - - (147,604)
------------ ------------- ------------- -------------- ----------- -------------
Balance, December 31, 1999 - - 11,769,000 1,177 984,722 (147,604)
Issuance of common stock
for services - - 19,930 2 9,963 -
Net (loss) for the period - - - - - (115,357)
------------ ------------- ------------- -------------- ------------ -------------
Balance, September 30, 2000 - $ - 11,788,930 $ 1,179 $ 994,685 $ (262,961)
============ ============= ============= ============== ============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
SAN JOAQUIN RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
The accompanying interim consolidated financial statements of San Joaquin
Resources Inc. (the "Company") are unaudited. In the opinion of management, the
interim data includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results for the interim
period.
The consolidated financial statements included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations.
Management believes the disclosures made are adequate to make the information
not misleading and recommends that these condensed financial statements be read
in conjunction with the financial statements and notes included in the Company's
Form 10-KSB as of December 31, 1999.
ORGANIZATION AND BUSINESS COMBINATION
LEK International, Inc. ("LEK") was incorporated under the laws of the State of
Nevada on April 21, 1997, for the purpose of evaluating, structuring and
completion of a merger with, or acquiring a privately owned corporation. LEK is
a public company which had no operations. On December 31, 1999, LEK completed an
agreement (the "Agreement and Plan of Reorganization") whereby it issued
8,069,000 shares of its common stock to acquire all of the shares of San Joaquin
Oil & Gas Ltd. ("San Joaquin"), a private corporation incorporated on September
14, 1999, under the laws of the State of Nevada. San Joaquin is an independent
energy company engaged in the exploration, development and acquisition of crude
oil and natural gas reserves in the western United States and is considered a
development stage company as defined by Statement of Financial Accounting
Standards (SFAS) No. 7. San Joaquin is an exploration stage oil and gas company
and as of September 30, 2000, has not earned any production revenue, nor found
proved resources on any of its properties. San Joaquin's principal activities
have been raising capital through the sale of its securities, identifying and
evaluating potential oil and gas property acquisitions, and acquiring an
interest in a limited liability company.
As a result of this transaction, San Joaquin became a wholly-owned subsidiary of
LEK, and effective January 17, 2000, LEK changed its name to San Joaquin
Resources Inc. Since this transaction resulted in the former shareholders of San
Joaquin acquiring control of LEK, for financial reporting purposes the business
combination was accounted for as an additional capitalization of LEK (a reverse
acquisition with San Joaquin as the accounting acquirer). The operations of San
Joaquin will be the only continuing operations of the Company. In accounting for
this transaction:
i) San Joaquin was deemed to be the purchaser and parent company for financial
reporting purposes. Accordingly, its net assets were included in the
consolidated balance sheet at their historical book value; and
ii) control of the net assets and business of LEK was acquired effective
December 31, 1999, for no consideration.
The Company's fiscal year end is December 31. As San Joaquin was incorporated on
September 14, 1999, no comparative figures are presented.
7
<PAGE>
INVESTMENT IN OIL AND GAS VENTURE
On April 4, 2000, the Company notified Hilton Petroleum Ltd. ("Hilton") and
Hilton Petroleum Greater San Joaquin Basin LLC ("Hilton LLC") that it would no
longer fund any further capital contributions. Accordingly, the Company will
receive common shares of Hilton, based on the trading value price of Hilton
common stock, in an amount equal to its capital contributions. Hilton is a
Canadian public company listed on the Canadian Venture Exchange (the "CDNX") and
is engaged in the business of acquiring leasehold interests in oil and gas
properties and the exploration for, and development, production and sale of oil
and gas, predominantly in the United States through its wholly-owned
subsidiaries.
Hilton has advised the Company that it intends to issue 314,907 shares of the
common stock of Hilton (the "Hilton Shares") in exchange for the Company's
interest in Hilton LLC. As at September 30, 2000, the quoted market value of the
Hilton Shares was approximately $410,000 (CDN$614,100). Issuance of the Hilton
Shares is pending, subject to regulatory approval.
STOCKHOLDERS' EQUITY
On September 8, 2000, the Company issued 19,930 common shares of its capital
stock to a company controlled by a director of the Company for $9,965 in
professional services provided to the Company.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company, through its subsidiary, San Joaquin, is engaged in the business of
acquiring and exploring for petroleum and natural gas prospects. The Company
intends to participate in selected exploration projects as a non-operating,
working interest owner, sharing both risk and rewards with joint interest
partners. As of September 30, 2000, the Company did not have any joint interest
partners.
The following discussion of the results of operations of the Company for the
nine months ended September 30, 2000 should be read in conjunction with the
consolidated financial statements (unaudited) of the Company and related notes
included therein.
OVERVIEW
The Company, through its subsidiary, San Joaquin, is engaged in the business of
acquiring and exploring for petroleum and natural gas prospects.
The Company follows the full cost method of accounting for oil and gas
operations. Under this method all costs related to the exploration for and
development of oil and gas reserves are capitalized on a country-by-country
basis. Costs include lease acquisition costs, geological and geophysical
expenses, overhead directly related to exploration and development activities
and costs of drilling both productive and non-productive wells. Proceeds from
the sale of properties are applied against capitalized costs, without any gain
or loss being recognized, unless such a sale would significantly alter the rate
of depletion and depreciation.
Depletion of exploration and development costs and depreciation of production
equipment is provided using the unit-of-production method based upon estimated
proven oil and gas reserves. The costs of significant unevaluated properties are
excluded from costs subject to depletion. For depletion and depreciation
purposes, relative volumes of oil and gas production and reserves are converted
at the energy equivalent conversion rate of six thousand cubic feet of natural
gas to one barrel of crude oil.
In applying the full cost method, the Company performs a ceiling test whereby
the carrying value of oil and gas properties and production equipment, net of
recorded future income taxes and the accumulated provision for site restoration
and abandonment costs, is compared annually to an estimate of future net cash
flow from the production of proven reserves. Costs related to undeveloped oil
and gas properties are excluded from the ceiling test. Discounted net cash flow
is estimated using year end prices, less estimated future general and
administrative expenses, financing costs and income taxes. Should this
comparison indicate an excess carrying value, the excess is charged against
earnings. At September 30, 2000, there were no reserves.
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000
San Joaquin, the Company's operating subsidiary and the acquirer of the Company
for accounting purposes, was incorporated on September 14, 1999. Accordingly, no
comparative figures are presented. During the three and nine month periods ended
September 30, 2000, the Company recorded a net loss of $31,598 (a loss of $0.003
per share) and a net loss of $115,357 (a loss of $0.01 per share), respectively.
During the three and nine month periods ended September 30, 2000, the Company
earned interest revenue of $1,335 and $7,492, respectively, on deposits held
from funds received from the Company's equity financings conducted in 1999.
During the nine month period ended September 30, 2000, the Company incurred
total expenses of $122,849. Included in this amount was $54,000 relating to the
salary of the President of the Company which has been
9
<PAGE>
recorded as part of professional fees. In addition, the Company incurred $39,113
in legal and accounting fees relating primarily to the costs associated with the
Company's audit and ongoing Securities and Exchange Commission filings.
During the three month period ended September 30, 2000, the Company incurred
total expenses of $32,933. Included in this amount was $18,000 relating to the
salary of the President of the Company which has been recorded as part of
professional fees. In addition, the Company incurred $8,851 in legal and
accounting fees relating primarily to the costs associated with ongoing
Securities and Exchange Commission filings.
During the nine month period ended September 30, 2000, the Company capitalized
$155,455 towards oil and gas properties. Of this amount $76,375 was attributed
to professional fees paid to Davis & Namson for geological studies. The Company
received an $78,000 payment from Consolidated Earth Stewards Inc. under an
option agreement granted by the Company. The Company also received $25,000 from
Lucre Ventures Ltd. as recovery of costs incurred. These amounts have been
credited to oil and gas properties.
At September 30, 2000, the Company had a working capital surplus of $88,460,
compared to a working capital surplus of $324,035 at December 31, 1999. The
decrease in working capital is the result of funds capitalized on the Company's
oil and gas properties, which includes fees paid to Davis & Namson, as discussed
above. Additionally, the decrease in working capital is the result of Company's
net loss incurred during the period.
During the nine month period ended September 30, 2000, the Company contributed
an additional $7,728 towards its investment in Hilton LLC. On April 4, 2000, the
Company notified Hilton and Hilton LLC that it would cease to fund any further
capital contributions and elected to receive common shares of Hilton. Hilton has
notified the Company that it has made application to the regulatory authorities
to issue 314,907 of Hilton's common shares to the Company.
LIQUIDITY AND PLAN OF OPERATIONS
In management's view, given the nature of the Company's operations, which
consist of the acquisition, exploration and evaluation of petroleum and natural
gas properties, the most meaningful information relates to current liquidity and
solvency. The Company's financial success will be dependent upon the extent to
which it can discover sufficient economic reserves and successfully develop the
properties containing those reserves. Such development may take years to
complete and the amount of resulting income, if any, is difficult to determine
with any certainty. The sales value of any petroleum or natural gas discovered
by the Company is largely dependent upon other factors beyond the Company's
control.
To date, the Company's capital needs have been met by equity financings.
Management believes the Company has sufficient cash, without giving effect to
the sale of the shares of Hilton which the Company anticipates receiving as a
result of its election to discontinue its funding of Hilton LLC, to fund the
Company's operations until the second quarter of 2001. As at September 30, 2000,
the Company had $89,720 in cash which management has allocated to acquire
approximately 900 acres of petroleum and natural gas leases in the Crocker
Canyon project.
In order to reduce its outlay of capital the Company has decided to convert its
interest in Hilton LLC into common shares of Hilton. By making this election the
Company is no longer subject to cash calls for wells drilled in the San Joaquin
Joint Venture. Pursuant to the terms of the operating agreement of Hilton LLC,
the Company will receive shares in Hilton, based on the trading value price of
Hilton common stock, in an amount equal to the Company's its capital
contributions. The operating agreement provides that no shares can be issued
until twelve months after the date of the investment in the Hilton LLC, which in
the case of the
10
<PAGE>
Company was September 30, 2000. The objective of the agreement is to reimburse
the Company for its investment in Hilton LLC with common shares of Hilton.
Hilton has advised the Company that it has made application to the CDNX to issue
314,907 common shares of Hilton to the Company. As at September 30, 2000, the
quoted market value of the Hilton shares was approximately $410,000.
It is anticipated these shares in Hilton will be sold in an orderly manner on
the CDNX in the fourth quarter year 2000 and the first half of the year 2001.
The money received from the sale of these shares will be used to fund the
further activity of the Company. There are no assurances that the Company will
be able to sell the shares of Hilton which the Company receives or that the
Company will realize an amount upon any such sales sufficient to reimburse the
Company for its expenditures.
Management believes the Company will need to raise additional funds within the
next 12 to 18 months. It is the intention of the Company to raise additional
capital in the following ways to fund the acquisition of additional prospects
and to drill exploration wells on the Willow Springs and Crocker Canyon
prospects:
a. Farmout both Willow Springs and Crocker Canyon prospects whereby the
Company will be carried through the cost to drill, complete, equip or
abandon an exploration well on each prospect and retain a negotiated
interest in each prospect. Alternatively, the Company may elect to sell
all or portions of Willow Springs and/or Crocker Canyon prospects. The
funds derived from the sale could be used to pay the Company's portion
of the cost to drill, complete, equip or abandon an exploration well on
each prospect.
b. By raising additional capital through a private placement (or
placements) of common stock of the Company.
During the next twelve months the operational plans for the Company entail
conducting the following:
a. Complete acquisition of petroleum and natural gas leases in the Willow
Springs and Crocker Canyon prospects.
b. Either sell all or a portion of its interest in the Willow Springs and
Crocker Canyon prospects or, alternatively, farmout its interest in
said prospects. This action is necessary to facilitate the drilling of
an exploration well on each prospect in year 2001.
The Company's ability to continue as a going concern is dependent upon its
ability to generate sufficient cash flow to meet its obligations on a timely
basis, to obtain additional financing (through the sale of its equity interests
or interests in its properties) or refinancing as may be required, and
ultimately to attain profitability. There are no assurances that the Company
will be able to obtain any such financing or, if the Company is able to obtain
additional financing, that such financing will be on terms favorable to the
Company. The inability to obtain additional financing when needed will have a
material adverse effect on the Company's operating results.
TRADING ON THE OTC BULLETIN BOARD
The Company's stock is cleared for trading on the OTC Bulletin Board by NASD
Regulation, Inc. under the symbol "SJQR".
11
<PAGE>
NEW OPPORTUNITIES
In addition to the Company's current operations, management is seeking new
opportunities for the Company.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES OF SECURITIES
During September 2000, the Company issued 19,930 shares to a company
controlled by a director of the Company in exchange for services
performed for the Company, valued at $9,965. The shares were issued
pursuant to Section 4(2) of the Securities Act of 1933, and as such,
were issued with a restrictive legend.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
12
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
REGULATION CONSECUTIVE
S-B NUMBER EXHIBIT PAGE NUMBER
<S> <C> <C>
2.1 Agreement and Plan of Reorganization (1)<F1> N/A
3.1 Amended and Restated Articles of Incorporation (1)<F1> N/A
3.2 Bylaws (2)<F2> N/A
3.3 Amendment to Article II, Section 6 of the Bylaws 15
4.1 1999 Stock Option Plan (3)<F3> N/A
10.1 Operating Agreement of Hilton Petroleum Greater San
Joaquin Basin Joint Venture LLC (3)<F3> N/A
10.2 Consulting and Overriding Royalty Agreement with
Davis & Namson (3)<F3> N/A
10.3 Agreement with Canyon Oil (3)<F3> N/A
10.4 Agreement with Consolidated Stewards Inc., as
amended (3)<F3> N/A
11 Statement re: Computation of Per Share Earnings See
Financial Statements
27 Financial Data Schedule 17
<FN>
<F1>
(1) Incorporated by reference to the exhibits filed with the Company's Form 8-K dated
December 31, 1999.
<F2>
(2) Incorporated by reference to the exhibits filed with the Company's Form 10-SB dated
July 23, 1999.
<F3>
(3) Incorporated by reference to the exhibits filed with the Company's Form 10-KSB dated
December 31, 1999.
</FN>
</TABLE>
(b) Reports on Form 8-K: None.
13
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SAN JOAQUIN RESOURCES INC.
Date: November 8, 2000 By: /s/ Nick DeMare
-------------------------------------------
Nick DeMare, Secretary, Treasurer,
Director and Principal Financial and
Accounting Officer
14
