UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
COMMISSION FILE NUMBER 000-31032
GL ENERGY AND EXPLORATION, INC.
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(Exact name of registrant as specified in charter)
DELAWARE 52-2190362
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
#300-1497 Marine Drive, West Vancouver, B.C. V7T 1B8
-------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (604) 926-2873
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Securities registered pursuant to section 12(b) of the Act:
Title of Class Name of each exchange on which registered
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NONE NONE
Securities registered pursuant to section 12(g) of the Act:
Common Stock
----------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy of
information statements incorporated by reference in Part 10-KSB or any amendment
to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $0.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock as of a specified date within the past 60
days: As of February 26, 2004, the aggregate market price of the voting stock
held by non-affiliates was approximately $ 1,436,046.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of February 26, 2004, the
Company had outstanding 31,073,641 shares of its common stock, par value $0.001.
TABLE OF CONTENTS
ITEM NUMBER AND CAPTION PAGE
PART I
ITEM 1. DESCRIPTION OF BUSINESS 3
ITEM 2. DESCRIPTION OF PROPERTY 5
ITEM 3. LEGAL PROCEEDINGS 5
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 5
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 5
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION OR PLAN OF OPERATION 7
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 10
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 20
ITEM 8A. CONTROLS AND PROCEDURES 20
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS: COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT 20
ITEM 10. EXECUTIVE COMPENSATION 21
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 22
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 22
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K 23
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 23
2
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Company Background
GL Energy and Exploration, Inc. was incorporated in the state of
Delaware on October 7, 1998 under the name LRS Group Incorporated. On October
15, 1998, the name of the corporation was changed to LRS Capital, Inc. On
October 10, 2001 the name of the corporation was changed to GL Energy and
Exploration, Inc. GL Energy is a development stage company.
Prior to May 29, 2003 our plan of operation was to be engaged in the
exploration of mining prospects with tungsten mineralization located in the
Western United States. We had an agreement with Platoro West Incorporated, a
mineral exploration company, under which that company would locate, stake out
and record mining claims that the mineral exploration company believed to
contain high concentrations of tungsten. The mineral exploration company staked
30 unpatented claims for GL Energy pursuant to this contract. If we defaulted
under the contract, the remedy specified in the agreement called for us to
convey to Platoro West all of our right title and interest in the mining claims
and to all the mineral resources located therein. On October 10, 2001, GL Energy
formed GL Tungsten, Inc. as a subsidiary incorporated in the state of Nevada,
for the purpose of conducting the mining exploration activities of the company.
GL Energy and Platoro West each assigned its respective obligations under the
mineral exploration agreement to GL Tungsten. GL Energy owns 99.3% and Platoro
West owns .7% of GL Tungsten. On August 7, 2003 we notified Platoro West that we
were terminating this agreement and forfeited all our rights and interest in the
applicable mining claims. As of December 31, 2003 GL Tungsten has no business
activities.
In February 2003 we formed a new wholly owned subsidiary, GL Gold, Inc.
GL Gold agreed to an asset purchase agreement, dated as of February 25, 2003, to
acquire a permitted gold mine as well as two un-permitted groups of mining
claims, which may have gold mineralization. At its election, the company may
also acquire certain mining equipment. The mining claims and assets are located
in Oregon. The agreement required the company to pay a $10,000 deposit, as well
as $590,000 for the mining claims and $150,000 for the equipment. The purchase
was subject to a number of conditions, which originally required completion on
or before April 30, 2003, including the company raising the purchase amounts,
and completing its due diligence. In April 2003, the company and the seller
agreed to extend the closing deadline to July 31, 2003. In lieu of funding this
project we disposed of this subsidiary as noted below.
On May 29, 2003, GL Energy and Exploration Inc. ("GEEX") and Wellstar
International Inc., a Nevada corporation ("Wellstar"), entered into an asset
purchase agreement ("Purchase Agreement") to acquire all of Wellstar's 60%
interest in two mineral claims located in Chile, known as LaBarca Deposit and
Duna Choapa Norte Deposit (together referred to as the "Claims") and certain
Joint Venture Agreements between SEM Mining Corporation S.A. and Wellstar
("JVA's"). The rights include the interest to market and benefit from certain
specified heavy metal minerals that may be obtained from the Claims, including
gold, rutile, zircon, magnetite, ilmenite, nickel and rare earth oxides. There
is no assurance that these Claims will have enough mineralizations that will be
commercially viable or be economically recoverable. The obligations under the
JVA's include having to raise capital to fund the Pilot Plant. This funding
obligation, which may be subject to schedule adjustments, includes US$2,000,000
for the pilot plant which was due on or before January 22, 2004 and US$8,000,000
for the production plant on or before January 22, 2004.
As of the date of this filing, GL Energy and SEM Mining Corporation
S.A. ("SEM") are in the process of finalizing an extension of dates relative to
the Joint Venture Agreements, which expired January 22, 2004. The amendments
will reflect the timing of access to funds anticipated from a Regulation S
Offering and a banking facility (See "Plan of Operation").
We can give no assurance that we will be able to locate adequate
financing arrangements to be able to fund our commitments.
3
History of the Claims
The personnel of SEM Mining originally started preliminary evaluation
work on the La Barca-Choapa Norte heavy mineral sands project in late 1995 as
part of a larger series of heavy mineral sands deposits. In 1996 and 1997 the La
Barca-Choapa Norte project in conjunction with the adjoining Choapa Sur project
were extensively explored and tested which involved drill sampling, mapping and
bench testing with environmentally friendly and modern gravity and
electro-magnetic systems to recover the heavy mineral components rutile
(titanium), ilemenite, magnetite, olivine, rare earth oxides, and fine free
gold. In 1997 the company conducted tests to develop marketable products
utilizing the light mineral components of the deposits.
In December 2003 SEM's General Manager and Director informed the
company that they have completed all the legal requirements and the required
land survey of all the claims bringing the property from the status of Claims to
Surveyed Claims so now SEM has legal title to the Property. SEM's Chief
Metallurgist has completed the wheeled metal frame of the Pilot Plant and has
begun the process of packing the laboratory equipment for shipping to Chile.
SEM has started the process of acquiring the mining permits and has
completed the EIS Environmental Impact Statement. The Environmental Impact
Statement complied fully with the requirements therefore the permitting process
was considerably shortened since this report is sufficient for both the local
and federal governments and only one permit for both the Pilot and Production
plants will be required. GL Energy & Exploration and SEM are now positioned for
a rapid start on preparing the prototype plant once we locate adequate
financing. GL Energy & Exploration is the financial partner having 60% interest
in the properties while SEM is the operating company having 40% interest.
Based on SEM's exploration activities to date we believe the primary
mineral associated with the deposits located in Chile, South America is rutile.
The world's output for rutile, both synthetic and natural is approximately
550,000 metric tons per year and 1,000,000 metric tons of zircon per year. The
world's consumption of rutile increases at a rate of 2 1/2% to 3% annually and
has been in short supply for at least a decade since no large supply of natural
rutile has been found or developed, the supply of rutile (TiO2) mainly coming
from ilmenite that is synthesized to rutile (titanium dioxide) which is a very
expensive process.
The GEEX/SEM project should produce high quality rutile and zircon and
the rutile does not need to go through this expensive process. We believe the
production from our project will not affect the price of rutile since it has
been in short supply for over a decade and the cost of synthesizing ilmenite to
rutile has been going up due to the increasing cost of energy. A new and cheaper
method of producing titanium metal from rutile has recently been developed,
which will impact on the supply of rutile. Titanium metal being light, strong,
and non-reactive has found increasing usage particularly in the automotive and
aviation industries. This new refining process is called the FFC-Cambridge
process. This process involves converting rutile (TiO2, titanium oxide) to
Titanium metal using electrolysis.
We can give no assurance that the exploration activities associated
with this project will produce commercially viable levels of minerals or be
economically recoverable.
Consideration for JVA's
The consideration for the Claims and JVA's was 20,000,000 shares of the
GEEX's common stock, $.001 par value. These shares were issued to two
individuals, at the direction of Wellstar, and are as follows: Donald Byers -
17,500,000 and Arthur Lang - 2,500,000. In addition, the Purchase Agreement
provided that the current directors and officers would resign effective upon
fulfilling the Securities and Exchange Commission notice requirements pursuant
to the proxy rules and Schedule 14C, at which time Messrs. Byers and Lang would
become directors and Mr. Byers would be appointed the president and Mr. Lang
would be appointed the secretary and treasurer of GEEX. The notice requirements
have been fulfilled and Mr. Byers and Mr. Lang are now the company's executive
officers.
As a result of the issuance of the 20,000,000 shares of Common Stock
and the change of the Board of Directors and officers, there has been a change
of control of GEEX.
4
In connection with the acquisition, we transferred our wholly owned
subsidiary, GL Gold, Inc., to a debt holder in partial repayment of an
outstanding loan. All obligations of GL Gold as previously noted were
transferred with the subsidiary. The transfer will also permit GEEX to focus its
efforts on the Claims and fulfilling its obligations under the JVA's.
Competition
We expect to compete with numerous mining and exploration companies,
many of which have far greater capital resources than we have. We can give no
assurance that we will be able to be competitive in this market.
Government Regulations
We will be subject to regulation by foreign governmental authorities.
The most significant of these authorities will be the various departments of the
Chilean government that regulate the mining industry for permits and
environmental requirements. If we fail to comply with any of the laws
established by these agencies, we could be subject to possible fines, many of
which could be considerable in amount.
ITEM 2. DESCRIPTION OF PROPERTY
Our executive office is located at #300-1497 Marine Drive, West
Vancouver, B.C., Canada. At this location, we share an undesignated amount of
space with another entity. Currently, our rent is included in the management
agreement with our president.
We also have a 60% interest in two mineral claims located in Chile,
known as LaBarca Deposit and Duna Choapa Norte Deposit (together referred to as
the "Claims") and certain Joint Venture Agreements between SEM Mining
Corporation S.A. and Wellstar ("JVA's").
Employees
We currently have two part-time employees, our president and
secretary/treasurer. We expect to hire consultants and independent contractors
who specialize in mining operations during the early stages of implementing our
business plan.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any material legal proceedings, and no material
legal proceedings have been threatened by or, to the best of our knowledge,
against us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET FOR COMMON STOCK
The common stock is traded in the over-the-counter market and quoted on
the OTC EBB under the symbol "GEEX" and quoted in the pink sheets published by
the National Quotations Bureau. In January 2004 the common stock also became
listed on the Berlin Stock Exchange under the symbol: "GLF.BER".
5
The trading volume in the Common Stock has been and is extremely
limited. The limited nature of the trading market can create the potential for
significant changes in the trading price for the Common Stock as a result of
relatively minor changes in the supply and demand for Common Stock and perhaps
without regard to our business activities. Because of the lack of specific
transaction information and our belief that quotations are particularly
sensitive to actual or anticipated volume of supply and demand, we do not
believe that such quotations are reliable indicators of a trading market for the
Common Stock.
The market price of our common stock may be subject to significant
fluctuations in response to numerous factors, including: variations in our
annual or quarterly financial results or those of our competitors; conditions in
the economy in general; announcements of key developments by competitors; loss
of key personnel; unfavorable publicity affecting our industry or us; adverse
legal events affecting us; and sales of our common stock by existing
stockholders.
Subject to the above limitations, we believe that during the eight
fiscal quarters preceding the date of this filing, the high and low sales prices
for the Common Stock during each quarter are as set forth in the table below
(such prices are without retail mark-up, mark-down, or commissions). The sales
prices were obtained from the stock sales history charts from the on-line stock
quote site quicken.com. that is provided by S&P Comstock Historical information
supplied by Iverson Financial Systems.
QUARTER ENDED HIGH LOW
----------------------------- ---- ----
December 31, 2003 .29 .11
September 30, 2003 .75 .18
June 30, 2003 .90 .15
March 31, 2003 .09 .02
December 31, 2002 .35 .08
September 30, 2002 1.75 .14
June 30, 2002 5.00 .10
March 31, 2002 2.25 1.50
As of December 31, 2003, there were approximately 1,190 holders of
record of our Common Stock including stock held in street name.
We have not paid any dividends to date. We can make no assurance that
our proposed operations will result in sufficient revenues to enable profitable
operations or to generate positive cash flow. For the foreseeable future, we
anticipate that we will use any funds available to finance the growth of our
operations and that we will not pay cash dividends to stockholders. The payment
of dividends, if any, in the future is within the discretion of the Board of
Directors and will depend on our earnings, capital requirements, restrictions
imposed by lenders and financial condition and other relevant factors.
RECENT SALES OF UNREGISTERED SECURITIES
None
6
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward Looking Statements
From time to time, we or our representatives have made or may make
forward-looking statements, orally or in writing. Such forward-looking
statements may be included in, but not limited to, press releases, oral
statements made with the approval of an authorized executive officer or in
various filings made by us with the Securities and Exchange Commission. Words or
phrases "will likely result", "are expected to", "will continue", "is
anticipated", "estimate", "project or projected", or similar expressions are
intended to identify "forward-looking statements". Such statements are qualified
in their entirety by reference to and are accompanied by the discussion of
certain important factors that could cause actual results to differ materially
from such forward-looking statements.
Management is currently unaware of any trends or conditions other than
those mentioned in this management's discussion and analysis that could have a
material adverse effect on the Company's consolidated financial position, future
results of operations, or liquidity. However, investors should also be aware of
factors that could have a negative impact on the Company's prospects and the
consistency of progress in the areas of revenue generation, liquidity, and
generation of capital resources. These include: (i) variations in revenue, (ii)
possible inability to attract investors for its equity securities or otherwise
raise adequate funds from any source should the Company seek to do so, (iii)
increased governmental regulation, (iv) increased competition, (v) unfavorable
outcomes to litigation involving the Company or to which the Company may become
a party in the future and, (vi) a very competitive and rapidly changing
operating environment.
The risks identified here are not all inclusive. New risk factors
emerge from time to time and it is not possible for management to predict all of
such risk factors, nor can it assess the impact of all such risk factors on the
Company's business or the extent to which any factor or combination of factors
may cause actual results to differ materially from those contained in any
forward-looking statements. Accordingly, forward-looking statements should not
be relied upon as a prediction of actual results. Actual results may differ
materially from historical earnings and those presently anticipated or
projected. We have no obligation to publicly release the result of any revisions
that may be made to any forward-looking statements to reflect anticipated events
or circumstances occurring after the date of such statements.
The financial information set forth in the following discussion should
be read with the financial statements of GL Energy and Exploration included
elsewhere herein.
Plan of Operation
Our current plan of operation is to locate adequate capital in order to
fund our obligations under the joint venture agreements. To that end we are
currently negotiating an extension of time with our joint venture partner as to
the funding requirements. We anticipate obtaining funding from the sale of our
common stock and loans from financial institutions.
In January 2004, we concluded a best efforts agency agreement with an
attorney in Munich, Germany to sell a maximum of 10,000,000 common shares of our
stock at $0.20 net per share to the Company under a Regulation S Offering
Memorandum.
In addition, we are negotiating a $20,000,000 loan through Webster
Financial Resources Ltd. in order to facilitate the construction of both the
Pilot and Production Plants. The loan would have a 7 year term with interest
accruing at the prime rate. If we are successful in receiving this funding we
have a contingent liability totaling $521,000 that will be due to Wellstar
International Inc. for consulting services rendered, the asset acquisition
agreement in Chile and assistance in locating the funding.
7
If the above funding occurs, we anticipate utilizing the capital for
the following:
Budgeted estimates for the LaBarca Deposit and Duna Choapa Norte Deposit
(Land leasing of 19 square kilometers)
Buildings, infrastructure, office, maintenance shops, storage $ 1,000,000
Equipment 450,000
Pilot plant 2,300,000
Production plant 9,000,000
Site development, land clearing, power, hydro, water study,
sewage and landscaping 190,000
Engineers 160,000
Surveyors 28,000
Legal expenses 22,000
Environmental impact studies 212,000
Development fees 28,000
On site management 350,000
Marketing costs (international for 2 years) 2,000,000
Legal and bank fees 390,000
Inspection fees 350,000
Consultant fees 800,000
Reimbursement of pre-operational costs 1,000,000
Build facilities for mining employees 1,720,000
Total $20,000,000
We can give no assurance that we will be successful in locating or
obtaining any of the funding that will be needed in order to implement our plan
of operations.
Financial Condition and Changes in Financial Condition
Overall Operating Results:
We had no revenues for the year ended December 31, 2003 or since our
inception.
We incurred $1,976,141 in operating expenses for the year ended
December 31, 2003. Of these expenses $1,896,600 were for consulting services
rendered for public and shareholder relations as well as various other corporate
identity programs. These services were non-cash related and were paid through
the issuance of 8,490,000 shares of common stock that was previously registered
through the company's 2003 Equity Performance Plan. We also incurred $41,460 in
legal and accounting fees. These fees were incurred for SEC compliance
requirements and legal expenses associated with the acquisition of the joint
venture agreements. We entered into a management agreement with our president
for $8,000 per month in lieu of wages. We incurred $56,000 in management fees
under this agreement for the year ended December 31, 2003.
During the current year we recognized other income of $34,464 for the
forgiveness of debt due to Platoro West. As previously noted we cancelled that
agreement in August 2003 and transferred all our rights to Platoro in lieu of
the amounts owed them. In addition, we recognized a gain on our disposal of GL
Gold in the amount of $18,261.
Our expenses for the year ended December 31, 2002 were $82,887 and were
incurred in connection with the prior business operations of the company. These
expenses were primarily for legal and accounting fees and mineral rights under
the agreement with Platoro.
Liquidity and Capital Resources:
Since our inception we have had minimum working capital to fund our
operations. In order to fund our operations we have relied on the sale of our
common stock and loans from shareholders.
8
To fund our mining exploration operations to date, we sold shares of
our common stock. These sales were comprised of 2,364,624 shares of our common
stock registered in 2001 and our Regulation S offering of 1,000,000 shares in
2002, which also had attached warrants to purchase 2,000,000 shares of common
stock. These warrants expired on July 31, 2003. All shares and warrants are on a
pre-stock split basis.
We have also relied on loans from shareholders to fund operations. In
conjunction with the asset acquisition agreement we transferred GL Gold to
shareholders as repayment on loans that they had made to the company. In
addition, Donald Byers, our President, Chairman of the Board and majority
shareholder and two other shareholders have loaned the company $65,225 as of
December 31, 2003 to fund the remaining amounts due under the transfer of GL
Gold and to fund our business operations. These loans do not bear interest and
will be repaid upon the company receiving funding.
We currently have a working capital deficit and only a minimum of
operating cash with which we can fund our future operations. We must obtain
adequate funding in order to fulfill our obligations under the asset acquisition
agreement for the completion of the pilot and production plants. If we do not
receive adequate funding, we will have to discontinue or substantially scale
back our operations.
We intend to seek either debt or equity capital or both. As of the date
of this filing we have no commitments for funding from any unrelated parties or
any other agreements that will provide us with adequate working capital. We
cannot give any assurance that we will locate any funding or enter into any
agreements that will provide the required operating capital to fund our
operations. In addition, we may also consider strategic alliances and mergers
and acquisitions as a means to pursue our business plan or otherwise fund the
company.
New Accounting Pronouncements
In November 2002, the FASB issued Financial Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45 sets forth the
disclosures required to be made by a guarantor in its financial statements about
its obligations under certain guarantees that it has issued. It also clarifies
that a guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The adoption of FIN 45 is not expected to have a material effect on
the Company's financial position or results of its operations.
In December 2002, the FASB issued Statements of Financial Accounting
Standards No. 148 "Accounting for Stock-Based Compensation--Transition and
Disclosure--an amendment of FASB Statement No. 123, This Statement amends FASB
Statement No. 123, Accounting for Stock-Based Compensation, to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, this
Statement amends the disclosure requirements of Statement 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The adoption of SFAS 148 is not expected to
have a material effect on the Company's financial position or results of its
operations.
In May 2003 the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity",
which requires that certain financial instruments be presented as liabilities
that were previously presented as equity or as temporary equity. Such
instruments include mandatory redeemable preferred and common stock, and certain
options and warrants. SFAS 150 is effective for financial instruments entered
into or modified after May 31, 2003 and is generally effective at the beginning
of the first interim period beginning after June 15, 2003. The adoption of SFAS
150 is not expected to have a material effect on the Company's financial
position or results of its operations.
9
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
10
INDEX TO FINANCIAL STATEMENTS
TABLE OF CONTENTS
PAGE
Report of Malone & Bailey, PLLC independent accountants F-1
Balance Sheet for the year ended December 31, 2003 F-2
Statements of Operations for the years ended December 31, 2003
and December 31, 2002 and inception to December 31, 2003 F-3
Statements of Stockholders' Equity (Deficit) for period
from October 7, 1998 (Inception) through December 31, 2003 F-4
Statements of Cash Flows for the years ended December 31, 2003
and December 31, 2002 and inception to December 31, 2003 F-5
Notes to Financial Statements F-6
11
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
GL Energy and Exploration, Inc.
(A Development Stage Company)
Toronto, Ontario, Canada
We have audited the accompanying balance sheet of GL Energy and Exploration,
Inc. as of December 31, 2003, and the related statements of operations,
stockholders' deficit, and cash flows for the two years then ended and for the
period from October 7, 1998 (Inception) through December 31, 2003. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of GL Energy and Exploration, Inc.
as of December 31, 2003, and the results of its operations and its cash flows
for the two years then ended and for the period from October 7, 1998 (Inception)
through December 31, 2003, in conformity with accounting principles generally
accepted in the United States of America.
Malone & Bailey, PLLC
Houston, Texas
www.malone-bailey.com
January 31, 2004
F-1
GL ENERGY AND EXPLORATION, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
December 31,
2003
------------
ASSETS
Current assets
Cash $ 79
Investment in joint venture 20,000
------------
Total current assets $ 20,079
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 24,290
Due to shareholders 65,225
------------
Total current liabilities 89,515
------------
Minority Interest 306
------------
Commitments
STOCKHOLDERS' DEFICIT:
Common stock, $.001 par value, 100,000,000
shares authorized, 29,573,641 shares issued
and outstanding 29,573
Additional paid in capital 2,051,467
Deficit accumulated during the development stage (2,150,782)
------------
Total Stockholders' Deficit (69,742)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 20,079
============
See accompanying summary of accounting policies
and notes to financialstatements
F-2
GL ENERGY AND EXPLORATION, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
Inception
Year Ended Year Ended through
December 31, December 31, December 31,
2003 2002 2003
------------ ------------ ------------
Mineral rights $ 9,832 $ 18,454 $ 85,830
Legal and accounting 41,460 29,415 136,279
General and administrative 1,924,849 35,018 1,925,942
------------ ------------ ------------
Total Expenses 1,976,141 82,887 2,148,051
Minority interest in losses of subsidiary 190 (60) 56
------------ ------------ ------------
Loss from operations (1,976,331) (82,827) (2,148,107)
Interest expense (2,675) -- (2,675)
Forgiveness of debt 34,464 -- --
Gain on disposal of subsidiary 18,261 -- --
------------ ------------ ------------
Net Loss $ (1,926,281) $ (82,827) $ (2,150,782)
============ ============ ============
Net loss per share:
Basic and diluted $ (0.12) $ (0.08)
============ ============
Weighted average shares outstanding:
Basic and diluted 15,919,767 1,050,233
============ ============
See accompanying summary of accounting policies
and notes to financial statements.
F-3
GL ENERGY AND EXPLORATION, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Period from October 7, 1998 (Inception) through December 31, 2003
Deficit
accumulated
Common stock Additional during the
-------------------------- paid in development
Shares Amount capital stage Total
----------- ----------- ----------- ----------- -----------
Issuance of common stock to
founders for $200 286,427 $ 286 $ (86) $ -- $ 200
Fair value of services performed -- -- 300 -- 300
Net loss -- -- -- (1,784) (1,784)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 286,427 286 214 (1,784) (1,284)
Fair value of services performed -- -- 1,200 -- 1,200
Net loss -- -- -- (29,737) (29,737)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 286,427 286 1,414 (31,521) (29,821)
Issuance of common stock under a
service agreement 2,386 2 148 -- 150
Issuance of common stock to
directors for services 63,636 64 3,936 -- 4,000
Fair value of services performed -- -- 1,200 -- 1,200
Conversion of amounts due to
shareholder to common stock 492,234 492 30,448 -- 30,940
Net loss -- -- -- (65,000) (65,000)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 2000 844,683 844 37,146 (96,521) (58,531)
Issuance of common stock under a
service agreement 1,591 2 98 -- 100
Fair value of service performed -- -- 1,200 -- 1,200
Sale of common stock 188,135 188 73,712 -- 73,900
Common shares received and retired
for minority interest in GL
Tugsten, Inc. (3,977) (4) (246) -- (250)
Net loss -- -- -- (45,153) (45,153)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 2001 1,030,432 1,030 111,910 (141,674) (28,734)
Sale of common stock 45,455 45 49,955 -- 50,000
Fair value of services performed 7,727 8 1,492 -- 1,500
Net loss -- -- -- (82,827) (82,827)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 2002 1,083,614 1,083 163,357 (224,501) (60,061)
Issuance of common stock for
services 8,490,000 8,490 1,888,110 -- 1,896,600
Issuance of common stock for
investment in joint venture 20,000,000 20,000 -- -- 20,000
Adjustment for fractional shares in
the reverse stock split 27 -- -- -- --
Net loss -- -- -- (1,926,281) (1,926,281)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 2003 29,573,641 $ 29,573 $ 2,051,467 $(2,150,782) $ (69,742)
=========== =========== =========== =========== ===========
See accompanying summary of accounting policies
and notes to financial statements.
F-4
GL ENERGY AND EXPLORATION, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
Inception
Year Ended Year Ended through
December 31, December 31, December 31,
2003 2002 2003
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,926,281) $ (82,827) $ (2,150,782)
Adjustments to reconcile net deficit to cash
used by operation activities:
Common stock issued for services 1,896,600 -- 1,896,600
Fair value of services received -- 1,500 9,400
Minority interest 190 (60) 306
Net changes in:
Prepaid expenses 200 (200) --
Accounts payable 24,046 (1,703) 24,290
Accrued obligation to Platoro West, Inc. (27,132) 8,709 --
------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (32,377) (74,581) (220,186)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the sale of common stock -- 50,000 124,100
Proceeds from notes payable - shareholders -- -- 30,940
Due to related parties (2,000) (36) 65,225
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES (2,000) 49,964 220,265
------------ ------------ ------------
NET CHANGE IN CASH (34,377) (24,617) 79
Cash, beginning of period 34,456 59,073 --
------------ ------------ ------------
Cash, end of period $ 79 $ 34,456 $ 79
============ ============ ============
Supplemental Non-cash Transactions:
Issuance of common stock for assets $ 20,000 $ -- $ 20,000
============ ============ ============
Conversion of notes payable - shareholders $ -- $ -- $ 30,940
============ ============ ============
See accompanying summary of accounting policies
and notes to financial statements.
F-5
GL ENERGY AND EXPLORATION, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
Nature of business. GL Energy and Exploration, Inc. ("GL Energy") is an
exploration stage company with no current business operations. GL Energy was
incorporated in the state of Delaware on October 7, 1998 under the name LRS
Group Incorporated. On October 15, 1998, the name of the corporation was changed
to LRS Capital, Inc. On October 10, 2001, the company changed its name to GL
Energy and Exploration, Inc. from LRS Capital, Inc. GL Energy has acquired
certain mining claims.
Principles of Consolidation
The consolidated financial statements include the accounts of GL Energy and its
99.3% owned subsidiary GL Tungsten, Inc. ("GL Tungsten"). All significant
intercompany transactions and balances have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the balance sheet. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash and all highly liquid financial
instruments with purchased maturities of three months or less.
Income Taxes
Income taxes are computed using the asset and liability method. Under the asset
and liability method, deferred income tax assets and liabilities are determined
based on the differences between the financial reporting and tax bases of assets
and liabilities and are measured using the currently enacted tax rates and laws.
A valuation allowance is provided for the amount of deferred tax assets that,
based on available evidence, are not expected to be realized.
Basic and Diluted Loss Per Share
Basic and diluted loss per shares computed using the weighted average number of
shares common shares outstanding during the period.
Impairment of Assets
Management reviews assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Management assesses impairment by comparing the carrying amount to
individual cash flows. If deemed impaired, measurement and recording of an
impairment loss is based on the fair value of the assets.
Recent Accounting Pronouncements
The Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on the Company's results of
operations, financial position or cash flow.
F-6
NOTE 2 - INCOME TAXES
For the year ended December 31, 2003 and 2002, GL Energy has incurred net losses
and, therefore, has no tax liability. The net deferred tax asset generated by
the loss carry-forward has been fully reserved. The cumulative net operating
loss carry-forward is approximately $260,000 at December 31, 2003, and will
expire in the years 2022 through 2023.
Deferred income taxes consist of the following at March 31:
2003 2002
---------- ----------
Long-term:
Deferred tax assets $ 39,000 $ 33,750
Valuation allowance (39,000) (33,750)
---------- ----------
$ - $ -
========== ==========
NOTE 3 - RELATED PARTY TRANSACTIONS
GL Energy had outstanding loans due from shareholders of $65,225 and $67,225 at
December 31, 2003 and 2002, respectively.
In June 2003, GL Energy issued 20,000,000 shares of common stock, for an
investment in a mining claim in Chile. These shares were issued to two
individuals, as follows: Donald Byers - 17,500,000 and Arthur Lang - 2,500,000.
In addition, the Purchase Agreement provided that the current directors and
officers would resign effective upon fulfilling the Securities and Exchange
Commission notice requirements pursuant to the proxy rules and Schedule 14C, at
which time Messrs. Byers and Lang would become directors and Mr. Byers would be
appointed the president and Mr. Lang would be appointed the secretary and
treasurer of GL Energy. The common shares were valued at the historical basis of
Mr. Byers and Mr. Lang.
In June 2003, GL Energy entered into a management agreement with our President
and Chairman of the Board for $8,000 per month in lieu of wages through May 1,
2004. The agreement also includes providing office space for the GL Energy in
lieu of rent. These management fees will be accrued and will not be paid until
GL Energy receives adequate funding.
NOTE 4 - COMMON STOCK
During the year ending December 31, 2003 GL Energy issued 8,490,000 shares of
stock for services valued at $1,896,600.
In May 2003, GL Energy authorized a 1 for 22 reverse stock split changing the
outstanding common shares from 23,839,506 to 1,083,641. The reverse stock split
has been applied retroactively to all prior periods presented.
In July 2002, GL Energy sold 45,455 shares of its common stock for net proceeds
of $50,000.
In October 2001, GL Energy exchanged 60,000 shares of Tungsten for 87,500 shares
of its common stock. The 87,500 shares were immediately retired.
In August 2000, GL Energy sold 188,135 shares of its common stock for net
proceeds of $73,900.
In April 2001, GL Energy issued 1,591 common shares for services which were
valued at $100.
F-7
In June 2000, GL Energy converted $30,940 of amounts due to related parties by
issuing 492,234 common shares.
In June 2000, GL Energy issued 63,636 common shares to three directors valued at
$4,000 for compensation and services from the time of their appointment in 2000
through June 30, 2000.
In May 2000, GL Energy issued 52,500 common shares for services which were
valued at $150, the equivalent price paid on June 6, 2000 for the conversion of
due to related party balances into common shares. Refer to Note 6 for a full
discussion of the services.
In October 1998, GL Energy issued 286,427 common shares to its founders for
proceeds of $200.
NOTE 5 - FORGIVENESS OF DEBT
GL Energy had an agreement with Platoro West Incorporated, a mineral exploration
company, under which that company would locate, stake out and record mining
claims that the mineral exploration company believed to contain high
concentrations of tungsten. The mineral exploration company staked 30 unpatented
claims for GL Energy pursuant to this contract. If GL Energy defaulted under the
contract, the remedy specified in the agreement called for GL Energy to convey
to Platoro West all of its right title and interest in the mining claims and to
all the mineral resources located therein. On August 7, 2003 GL Energy notified
Platoro West that it was terminating this agreement and forfeited all its rights
and interest in the applicable mining claims. GL Energy recognized other income
of $34,464 for the forgiveness of debt due to Platoro West upon cancellation of
the agreement and the transfer of all rights to the claims.
NOTE 6 - EQUITY PERFORMANCE PLAN
In June 2003, the Board of Directors and majority stockholders adopted a plan
under which 10,000,000 shares of the GL Energy's common stock have been reserved
for issuance. Under this plan, as of December 31, 2003, a total of 8,490,000
common shares have been issued to various consultants.
NOTE 7 - SUBSEQUENT EVENT
In January 2004, GL Energy issued 1,500,000 shares of stock in trust in
connection with a 10,000,000 share Registration S offering.
F-8
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 8A. CONTROLS AND PROCEDURES
Disclosure controls and procedures are controls and other procedures
that are designed to ensure that information required to be disclosed in company
reports filed or submitted under the Securities Exchange Act of 1934 (the
"Exchange Act") is recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange Commission's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in
company reports filed under the Exchange Act is accumulated and communicated to
management, including the Company's Chief Executive Officer and Chief Financial
Officer (the "Certifying Officers"), as appropriate to allow timely decisions
regarding required disclosure.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, the
Certifying Officers carried out an evaluation of the effectiveness of the design
and operation of the Company's disclosure controls and procedures as of December
31, 2003. Their evaluation was carried out with the participation of other
members of the Company's management. Based upon their evaluation, the Certifying
Officers concluded that the Company's disclosure controls and procedures were
effective.
The Company's internal control over financial reporting is a process
designed by, or under the supervision of, the Certifying Officers and effected
by the Company's Board of Directors, management and other personnel, to provide
reasonable assurance regarding the reliability of the Company's financial
reporting and the preparation of the Company's financial statements for external
purposes in accordance with generally accepted accounting principles. Internal
control over financial reporting includes policies and procedures that pertain
to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of the Company's assets; provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of the Company's financial statements in accordance with generally
accepted accounting principles, and that the Company's receipts and expenditures
are being made only in accordance with the authorization of the Company's Board
of Directors and management; and provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition
of the Company's assets that could have a material effect on its financial
statements. There has been no change in the Company's internal control over
financial reporting that occurred in the fiscal year ended December 31, 2003,
that has materially affected, or is reasonably likely to affect, the Company's
internal control over financial reporting.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth information concerning the directors and
executive officers of GL Energy and Exploration and their ages and positions.
Each director holds office until the next annual stockholders' meeting and
thereafter until the individual's successor is elected and qualified. Officers
serve at the pleasure of the board of directors.
20
NAME AGE POSITION
Donald Byers 69 President and Chairman
Arthur Lang 69 Secretary, Treasurer and Director
P.J. Santos 64 Director
Donald Byers is the president and sole owner of Byers & Associates, a
firm that is a financial and business consulting firm located in Vancouver,
British Columbia, with clients among privately and publicly traded corporations.
He has held these positions since 1985. Mr. Byers is the sole director of
Wellstar International Inc.
Arthur Lang is the sole owner of a private real estate development
company operating in Penticton, B.C. since 1990.
P.J. Santos, P. Eng. was appointed to the Board of Directors of the
Company. Mr. Santos is President and CEO of SEM Mining Corporation S.A. ("SEM").
SEM retains 40% interest (the Operator) together with GEEX's 60% interest in 2
Joint Venture Agreements.
During the last five years, no officers or directors have been involved
in any legal proceedings, bankruptcy proceedings, criminal proceedings or
violated any federal or state securities or commodities laws or engaged in any
activity that would limit their involvement in any type of business, securities
or banking activities.
No person who, at any time during our past fiscal year, was a director,
officer, or beneficial owner of more than 10% of any class of equity securities
failed to file, on a timely basis, any report required by Section 16(a) of the
Exchange Act during the most recent fiscal year.
ITEM 10. EXECUTIVE COMPENSATION
We have not paid any cash compensation or other benefits to our
executive officers since our inception. Cash compensation amounts will be
determined in the future based on the services to be rendered and time devoted
to our business and the availability of funds. Other elements of compensation,
if any, will be determined at that time or at other times in the future.
Until we have sufficient capital or revenues, our executive officers
will not be provided cash remuneration. At such time as we are able to provide a
regular salary, it is our intention that our officers will become employed
pursuant to executive employment agreements, at an annual salary to be
determined based on their then levels of time devoted to GL Energy and
Exploration and the scope of their responsibilities. Until we enter into an
employment agreement, we may use shares of common stock to compensate our
officers. In addition, we may use common stock to compensate others for services
to GL Energy and Exploration.
COMPENSATION OF DIRECTORS
Persons who are directors and employees will not be additionally
compensated in cash for their services as a director. There is no plan in place
except for the 2003 Performance Equity Plan for compensation of persons who are
directors who are not employees, but it is expected that in the future we will
create a remuneration and reimbursement plan.
OTHER COMPENSATION ARRANGEMENTS
In 2003, a majority of the stockholders of the company approved a
performance equity plan for 10,000,000 shares (on a post-stock split basis) of
Common Stock ("2003 Performance Equity Plan"). The rights of the common stock
were not changed. We intend to issue the shares of common stock from time to
time as determined by the board of directors to directors, employees,
consultants and others. The board of directors of the company believes the 2003
Plan will provide flexibility in structuring compensation arrangements and
provide an equity incentive for employees and others who are awarded shares
under the 2003 Plan. The shares under an award may be issued at less than market
price at the discretion of the board of directors. None of the awards as
provided under the 2003 Plan are allocated to any particular person or class of
persons among those eligible to receive awards. As of December 31, 2003 we have
issued a total of 8,490,000 shares of common stock to various consultants under
the Plan.
21
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 2003, the name and
shareholdings of each person who owns of record, or was known by us to own
beneficially,* 5% or more of the shares of the common stock currently issued and
outstanding; the name and shareholdings, including options to acquire the common
stock, of each director; and the shareholdings of all executive officers and
directors as a group.
NUMBER OF PERCENTAGE
SHARES OF
NAME OF PERSON OR GROUP OWNED * OWNERSHIP
----------------------- ---------- ----------
Donald Byers ** 16,500,000 55.8%
Arthur Lang *** 2,500,000 8.5%
P.J. Santos **** 1,000,000 3.4%
Directors as a group (three persons) 20,000,000 67.6%
-------------
* Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock
issuable upon the exercise of options or warrants currently exercisable
or convertible within 60 days, are deemed outstanding for computing the
percentage ownership of the person holding such options or warrants but
are not deemed outstanding for computing the percentage ownership of
any other person.
** Donald Byers is the company's president and chairman of the board.
*** Arthur Lang is the company's secretary, treasurer and a director.
**** P. J. Santos is a company director.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
GL Energy had outstanding loans due from shareholders of $65,225 at
December 31, 2003.
In June 2003, GL Energy issued 20,000,000 shares of common stock, for
an investment in a mining claim in Chile. These shares were issued to two
individuals, as follows: Donald Byers - 17,500,000 and Arthur Lang - 2,500,000.
Mr. Byers is the president and chairman of the board and Mr. Lang is the
secretary and treasurer and director of GL Energy.
In June 2003, GL Energy entered into a management agreement with our
president and chairman of the board for $8,000 per month in lieu of wages
through May 1, 2004. The agreement also includes providing office space for GL
Energy in lieu of rent. These management fees will be accrued and will not be
paid until GL Energy receives adequate funding.
22
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit Number Name of Exhibit
3.1 Certificate of Amendment to the Certificate of
Incorporation (1)
4.1 Form of 2003 Equity Performance Plan (1)
10.1 Form of Asset Acquisition Agreement, dated as of May
29, 2003 (2)
31.1 Certification of Chief Executive Officer, pursuant to
Rule 13a-14(a) of the Exchange Act, as enacted by
Section 302 of the Sarbanes-Oxley Act of 2002. (3)
31.2 Certification of Chief Financial Officer, pursuant to
Rule 13a-14(a) of the Exchange Act, as enacted by
Section 302 of the Sarbanes-Oxley Act of 2002. (3)
32.1 Certification of Chief Executive Officer and Chief
Financial Officer, pursuant to 18 United States Code
Section 1350, as enacted by Section 906 of the
Sarbanes-Oxley Act of 2002. (3)
(1) Previously filed with Form DEF 14c (information statement) on May 5,
2003.
(2) Previously filed with the Form 8-K on June 13, 2003.
(3) Filed herewith.
b) Reports on Form 8-K
None
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
The company paid audit and financial statement review fees totaling
$2,400 and $4,500 for the years ended December 31, 2003 and 2002, respectively
to Malone & Bailey, PLLC, our current independent accountants.
Audit-Related Fees
None
Tax Fees
The company paid $500 to Malone & Bailey, PLLC for preparing the
company's Federal tax return for the year ended December 31, 2002.
23
All Other Fees
None
Audit Committee Policies & Procedures
The above services were approved by the company's Board of Directors.
The company does not have a standing audit committee.
24
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GL ENERGY AND EXPLORATION, INC.
-------------------------------
(Registrant)
By: /s/ Donald Byers
--------------------------------
Donald Byers, President and
Chairman of the Board (Principal
Executive Officer and Principal
Accounting Officer)
Date: March 8, 2004
25