U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10K-SB
Annual Report Under
the Securities Exchange Act of 1934
For Year Ended: December 31, 2002
Commission File Number: 000-49950
Prelude Ventures, Inc.
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(Exact name of small business issuer as specified in its charter)
Nevada
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(State or other jurisdiction of incorporation or organization)
98-0232018
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(IRS Employer Identification No.)
2585 West 14th Avenue
Vancouver, BC, Canada V6K 2W6
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(Address of principal executive offices)
None
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(Former name or former address, if changed since last report)
V6K 2W6
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(Zip Code)
(604) 817-8095
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(Issuer's Telephone Number)
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 ____.
The number of shares of the registrant's only class of common stock issued and
outstanding, as of December 31, 2002 was 15,000,000 common shares.
PART I
ITEM 1. FINANCIAL STATEMENTS.
The audited financial statements for the period ended December 31, 2002 are
attached hereto.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with our audited
financial statements and notes thereto included herein. In connection with, and
because we desire to take advantage of, the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, we caution readers regarding
certain forward looking statements in the following discussion and elsewhere in
this report and in any other statement made by, or on our behalf, whether or not
in future filings with the Securities and Exchange Commission. Forward looking
statements are statements not based on historical information and which relate
to future operations, strategies, financial results or other developments.
Forward looking statements are necessarily based upon estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond our control and many
of which, with respect to future business decisions, are subject to change.
These uncertainties and contingencies can affect actual results and could cause
actual results to differ materially from those expressed in any forward looking
statements made by, or our behalf. We disclaim any obligation to update forward
looking statements.
OVERVIEW
History And Organization
Prelude Ventures, Inc. (the "Company") was incorporated under the
laws of the state of Nevada on May 24, 2000. We have not commenced business
operations and we are considered a pre-exploration stage enterprise. To date,
our activities have been limited to organizational matters, obtaining a
mining engineer's report and the preparation and filing of the registration
statement of which this prospectus is a part. In connection with the
organization of our company, the founding shareholder of our company contributed
an aggregate of $25,000 cash in exchange for 1,000,000 shares of common stock
and conducting a public offering of 1,500,000 common shares for $75,000. We have
no significant assets.
Proposed Business
On March 9, 2001, we acquired a 20 year mining lease from Steve
Sutherland, the owner of 24 unpatented lode mining claims, sometimes referred to
as the Medicine Project, located in Elko County, Nevada. An unpatented claim is
one in which more assessment work is necessary before all mineral rights can be
claimed. As the owner of the claims, Mr. Sutherland has the right to lease the
claims to a third party but he remains responsible for compliance with all
applicable federal, state and county laws and regulations. Under the terms of
our lease with Mr. Sutherland, we are entitled to all of Mr. Sutherlands mineral
rights and we are also made responsible for compliance for all laws and
regulations that apply to the claims. We are presently in the pre-exploration
stage and there is no assurance that a commercially viable precious mineral
deposit exists in our property until appropriate geological exploration is done
and a final comprehensive evaluation concludes that there is economic and legal
feasibility to conduct mining operations.
The exploration program proposed by Prelude is designed to determine
whether mineralization exists to the extent that mining operations would be
economically feasible. It is uncertain at this time the precise quantity of
minerals in the property that would justify actual mining operations.
Prelude has leased the claims from Mr. Sutherland who is our landlord.
We also have the right to locate additional claims within one mile of the claims
which become part of the lease. Under the terms of the lease, Prelude must pay a
three percent production royalty and may extend the initial term of 20 years for
one additional period of 20 years provided that all conditions of the lease have
previously been met. Prelude has the exclusive possession of the property for
mining purposes during the term of the lease.
By a lease letter agreement effective March 9, 2001 and amended March
4, 2002 and September 4, 2002, the Company was granted the exclusive right to
explore, develop and mine the Medicine Project property located in Elko County
of the State of Nevada. The term of the lease was for 20 years, with automatic
extensions so long as the conditions of the lease are met. The Company was
required to pay minimum advance royalty payments totalling $97,500 on various
dates to March 9, 2005 and then $50,000 every March 9 thereafter. The Company
had paid a total of $7,500 in minimum advance royalty payments.
Subsequent to December 31, 2002, management of the Company abandoned
the mining lease. As the Company terminated the lease, it is required to pay all
federal and state mining claim maintenance fees for the next assessment year.
The Company is required to perform reclamation work in the property as required
by federal state and local law for disturbances resulting from the Company's
activities on the property.
The Company can reduce the net smelter return royalty to 0.5% by payment
of a buy-out price of $5,000,000. Advance royalty payments made to the date of
the buy-out will be applied to reduce the buy-out price. In the event that the
Company terminates the lease after June 1 of any year, it is required to pay all
federal and state mining claim maintenance fees for the next assessment year.
The Company is required to perform reclamation work in the property as required
by federal state and local law for disturbances resulting from the Company's
activities on the property.
If Prelude fails to meet the above lease payments, the lease may be
terminated if the landlord gives written notice of such default. After receipt
of default, Prelude has 15 days to cure the default. In addition, the lease may
be terminated if Prelude fails to make federal, state, and county maintenance
payments or filing fees at least 15 days prior to due date. In that event, the
landlord must notify Prelude of a possible default. After 10 days, if the
default is not cured the landlord may initiate payment on the claims. Prelude
will be able to cure this default by reimbursing all federal, state and county
payments made by the landlord plus a 20% penalty within 30 days.
Under applicable federal, state, and county laws and regulations,
annual mining claim maintenance or rental fees are required to be paid by
Prelude for the unpatented mining claims which constitute all or part of the
leased property, beginning with the annual assessment work period of September
1, 2001 to September 1, 2002. Prelude must timely and properly pay the federal,
state, and county annual mining claim maintenance or rental fees, and must
execute and record or file, as applicable, proof of payment of the federal,
state, and county annual mining claim maintenance or rental fees and the
landlord's intention to hold the unpatented mining claims. If Prelude does not
terminate the agreement before June 1 of any subsequent lease year, Prelude will
be obligated either to pay the federal, state, and local annual mining claim
maintenance or rental fees for the property due that year or to reimburse the
landlord.
Prelude also has the right to buy out the landlord's interest in
exchange for a payment of $5,000,000 from which royalty payments made up to the
time of the buyout may be deducted. If a buyout occurs, Prelude must also pay
the landlord a perpetual 0.5% royalty on all minerals recovered from the
property.
The lease may be terminated at any time by Prelude provided that we
give written notice 30 days prior to relinquishing the leased property. In the
event Prelude desires to terminate the agreement after June 1 of any year, we
are responsible for all federal, state, and county maintenance and filing fees
for the next assessment year regarding the leased property. In addition, we must
deliver to the landlord in reproducible form all data generated or obtained for
the leased property, whether factual or interpretive. Finally, we must quitclaim
to the landlord all claims located or acquired by us.
Our business activities to date have been restricted to obtaining a
report from our mining engineer, Edward P. Jucevic and preparing this offering.
Mr. Jucevic's report details the geological and mining history of the claims
leased by Prelude, including the land status, climate, geology and
mineralization. In preparing his report, Mr. Jucevic did not perform any actual
field work on the claims. Mr. Jucevic believes that based upon previous mining
activity in the area, sufficient evidence exists to warrant further exploration
on the leased property which could then lead to actual mining operations.
The property leased by Prelude is located in Elko County, Nevada and
comprises 24 unpatented claims. Mr. Jucevic has concluded that the claims
demonstrate a potential for surface-mineable oxidized-zinc deposits and
surface-mineable heap leachable silver deposits. Heap leaching is a process for
the extraction of valuable minerals utilizing chemical solutions that percolate
through crushed ore. A two phase exploration and drilling program has been
proposed. Phase 1, including a recommendation to stake four neighboring targets,
with estimated costs of $50,000. No exploration work will be performed until the
additional claim staking has taken place. We have not yet determined whether Mr.
Jucevic will be commissioned to perform additional research on the claims for
us. That would be followed by Phase 2 with estimated costs of $100,000. The
purpose of this offering is to finance the implementation of Phase I.
Location and Access
The leased property is located in Elko County, Nevada, approximately 50
airline miles southeast of the town of Elko, Nevada. Access from Elko, Nevada is
obtained by driving 20 miles on I-80 to Halleck, Nevada and then turning
southeast on paved Highway 229 for forty-two miles through Secret Pass across
the Ruby Mountains and then proceeding about 24 miles south on dirt roads to the
property. The claims are in what is known as the Mud Springs mining district.
Claim Status
The claims have been leased by Prelude form Steve Sutherland who currently
holds the property via 24 unpatented mining claims located during the month of
September 2000. The owner of the property is the United States government. The
land is administered by the Bureau of Land Management (BLM). Mr. Sutherland has
documentation that all requisite county and United States Bureau of Land
Management (BLM) papers have been filed and all fees paid. Two claims not
belonging to Mr. Sutherland lie within the claim boundary and are held by a
local prospector. Mr. Jucevic believes these two claims are most likely
available for lease under reasonable terms. We do intend to lease these claims
if possible. The local prospector who owns these two claims is Jerry Baughman.
He has no relationship to Prelude. At this time, he has not been approached by
us about leasing his two unpatented claims. We believe that reasonable terms for
the lease of these two claims would include a standard mining lease including an
anticipated $5,000 payment upon execution, with an option to purchase priced at
approximately $50,000 payable over a period of five years. The Sutherland claim
block comprises about 460 acres.
Climate And Local Resources
The claims leased by Prelude are located at elevations ranging from
5900 to 7950 feet in gently rolling hills covered with sagebrush and Pinion
pines. The climate is temperate with moderate snow cover from December to March.
No perennial streams exist on the property. However, groundwater is plentiful.
Power lines are located about three miles east of the property. The closest
population center is Bishop, located about 48 miles to the northwest.
History Of The Claims
Mr. Jucevic has examined the available literature on the claims.
According to these sources, base metals and silver were discovered on the
property in 1910. Production from high grade veins started as early as 1915.
Partial records indicate lead, silver and zinc were produced through 1956.
Recent exploration efforts were started in the 1980's by United States Minerals
Exploration (USMX), and Cominco American Inc. USMX made 105 drill holes totaling
11,190 feet between 1980 and 1996 which defined a mineralization of ore
containing silver, lead and zinc. Cominco controlled the property for a short
time and conducted geophysical surveys which identified potential mineralization
through the claims area that extend north of the claims.
Our Proposed Exploration Program
We must conduct exploration to determine what amount of minerals, if any,
exist on our properties, and if any minerals which are found can be economically
extracted and profitably processed. Our exploration program is designed to
economically explore and evaluate our claims.
We do not claim to have any minerals or reserves whatsoever at this time on
any of our claims. We intend to implement a pre-exploration program and to
proceed in the following two phases:
Phase I will involve expanding our block of claims by locating
approximately 50 additional claims and acquiring third party claims within the
area. There has been no staking of additional claims at this time. The initial
work of Phase I will be centered on opportunities and targets within the
boundaries of the leased claims. However, it is anticipated that expansion of
the existing claim position will be advisable following completion of the
geological investigations in Phase I. For example, U. S. Minerals Exploration, a
previous explorer of the claims, calculated potential mineralization along the
northeast area of the leased claims. Therefore, it appears probable that
additional claim staking in northeast and southwest extensions off this trend
would capture neighboring mineralization, as well as northeast trending fault
zones within the claims. With respect to maintenance costs, the current 24
claims are subject to total annual fees of $2,580.00 Annual maintenance fees for
an additional 50 claims would be $5,375.00. No land status work has been
conducted on neighboring lands by Mr. Jucevic. We will also take 200 rock
samples and 300 soil samples and perform geological mapping and geophysical
surveys followed by a written analysis of this exploration. The cost of Phase I
will is estimated to be $50,000 and will take approximately two months to
complete.
Upon completion of Phase I, we will determine the cost effectiveness of
proceeding to Phase II. In making this determination, we will undertake to have
our data from Phase I independently verified for accuracy by an independent
registered engineer to confirm the existence of mineralization.
Phase II will consist of substantial test drilling of a total of 5,000
feet to determine the extent, depth and dip of ore discovered in Phase I. It is
anticipated that Phase II will cost $100,000 and will also take approximately
two months to complete. If we decide not to proceed to Phase II, we will likely
cancel the lease and search for other mineral exploration sites to lease. As of
the date of this prospectus, no such search has been undertaken.
Competitive Factors
The mineral industry is fragmented. We compete with other exploration
companies looking for a variety of mineral reserves. We may be one of the
smallest exploration companies in existence. Although we will be competing with
other exploration companies, there is no competition for the exploration or
removal of minerals from our property. Readily available markets exist in North
America and around the world for the sale of minerals. Therefore, we intend to
develop mining claims to the production point in which major mining production
companies would seriously consider pursuing the property as a valuable and
significant acquisition.
Regulations
We will secure all necessary permits for exploration and, if development is
warranted on the property, will file final plans of operation before we start
any mining operations. We anticipate no discharge of water into active stream,
creek, river, lake or any other body of water regulated by environmental law or
regulation. No endangered species will be disturbed. Restoration of the
disturbed land will be completed according to law. All holes, pits and shafts
will be sealed upon abandonment of the property. It is difficult to estimate the
cost of compliance with the environmental law since the full nature and extent
of our proposed activities cannot be determined until we start our operations
and know what that will involve from an environmental standpoint.
The initial drilling program outlined in Phase I will be conducted on
BLM lands. The BLM will require the submittal of a plan of operation which would
be used as the basis for the bonding requirement, water permit and reclamation
program. The reclamation program could include both surface reclamation and
drill hole plugging and abandonment. The amount of the bonding would be based
upon an estimate by the BLM related to the cost of reclamation if done by an
independent contractor. Bonding costs vary on case by case basis. The scope of
the proposed program determines amount of reclamation bond required by the BLM.
Among the factors considered are the degree of proposed land disturbance,
whether there have been previous disturbances and the nature of previous
reclamation efforts. Since there is a substantial infrastructure of existing
roads across the property the amount of initial bonding would likely be reduced.
In addition, the terrain is relatively subdued which should further reduce the
necessity for road building. The estimate for Phase II reclamation and bonding
would depend upon the results of Phase I.
We would be subjected to the BLM rules and regulations governing
federal lands including a draft environmental impact statement or EIS, public
hearings and a final EIS. The final EIS would address county and state needs and
requirements and would cover issues and permit requirements concerning: air
quality, heritage resources, geology, energy, noise, soils, surface and ground
water, wetlands, use of hazardous chemicals, vegetation, wildlife, recreation,
land use, socioeconomic impact, scenic resources, health and welfare,
transportation and reclamation. Bonding requirements are developed from the
final EIS.
We are in compliance with the all laws and will continue to comply with the
laws in the future. We believe that compliance with the laws will not adversely
affect our business operations. Prelude anticipates that it will be required to
post bonds in the event the expanded work programs involve extensive surface
disturbance.
Employees
Initially, we intend to use the services of subcontractors for manual labor
exploration work on our properties. Prelude will consider hiring technical
consultants as funds from our public offering and additional offerings or
revenues from operations in the future permit. At present, our only employee is
William Iverson.
Mr. Iverson has been the President, Secretary-Treasurer and Director since our
company's inception on May 24, 2000. Since November 1999, Mr. Iverson has also
been employed by First Quantum Minerals Corporation of Vancouver, British
Columbia where he performs corporate relations services, including the
preparation of corporate profiles, brochures and advertisements. From November
1999 to February 2000 Mr. Iverson was also employed by Nevada Pacific Gold, Ltd.
From January 1996 to August 1997, Mr. Iverson was employed by Treminco
Resources, Ltd., a pre-exploration stage company, located in Vancouver, British
Columbia, where he performed corporate development services. In this capacity he
acted as a liaison between Tremninco and the financial community. From October
1997 to November 1998, Mr. Iverson was employed by Cee Bee Natural Gas, Ltd.
From January of 1988 until December of 1995 Mr. Iverson was also employed as a
stockbroker with Georgia Pacific Securities Corporation in Vancouver, British
Columbia. Mr. Iverson will continue to serve in his present positions with
Prelude until the next annual meeting of shareholders and devote approximately
15 hours per week of his time to the Prelude. Mr. Iverson has no formal training
or experience with mineral exploration. Mr. Iverson completed two years of
college in 1974 from the University of Alberta but he did not obtain a degree.
In addition, he was formerly licensed as a stockbroker in Canada between 1995
and 1998. That license, however, was allowed to lapse by Mr. Iverson in 1998
because he was pursuing a career in corporate relations. Mr. Iversen's
responsibilities with Prelude consist mainly of communicating with the
appropriate governmental agencies to ensure the company claims are kept in good
standing and coordinating the filing of this offering. In addition, Phase I of
the company's business plan will be performed by subcontractors, the activities
of which will be managed by Mr. Iverson. It is anticipated that additional
officers will be hired if Phase I of our business plan is successful to manage
the company's day to day mineral exploration activities.
Executive Compensation
Our sole director does not currently receive and has never received any
compensation for serving as a director to date. In addition, at present, there
are no ongoing plans or arrangements for compensation of any of our officers.
However, we expect to adopt a plan of reasonable compensation to our officers
and employees when and if we become operational and profitable.
Employees and Employment Agreements
At present, we have no employees, other than Mr. Iverson, our president and
sole director who has received no compensation for his services. Mr. Iverson
does not have an employment agreement with us. We presently do not have pension,
health, annuity, insurance, stock options, profit sharing or similar benefit
plans; however, we may adopt plans in the future. There are presently no
personal benefits available to any employees.
Business Acquisition
Pursuant to a memorandum of understanding dated December 11, 2002, and
effective January 31, 2003, the Company agreed to acquire 100% of the issued and
outstanding shares of Pascal Energy Inc. ("Pascal"), a Canadian corporation, by
issuing 6,261,276 common shares of the Company on closing and a further
6,261,674 common shares subject to the Company paying a dividend of not less
than $1,000,000 to its shareholders. Pascal Energy Inc.'s business is to provide
servicing for the oil and gas industry. This agreement is subject to closing,
which must be on or before April 1, 2003.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
We are a start-up, exploration stage company and have not yet started our
business operations or generated or realized any revenues from our business
operations.
Our auditors have issued a going concern opinion. This means that our
auditors believe there is doubt that we can continue as an on-going business for
the next twelve months unless we obtain additional capital to pay our bills.
This is because we have not generated any revenues and no revenues are
anticipated until we begin removing and selling minerals. Accordingly, we must
raise cash from sources other than the sale of minerals found on our property.
Our only other source for cash at this time is investments by others in our
company. We must raise cash to implement our project and stay in business.
To meet our need for cash we are attempting to raise money from this
offering. There is no assurance that we will be able to raise enough money
through to stay in business. Whatever money we do raise will be applied first to
exploration and then to development, if development is warranted. If we do not
raise all of the money we need from this offering, we will have to find
alternative sources, like a second public offering, a private placement of
securities, or loans from our officers or others. At the present time, we have
not made any arrangements to raise additional cash, other than through this
offering. If we need additional cash and cannot raise it, we will either have to
suspend operations until we do raise the cash, or cease operations entirely.
We will be conducting research in connection with the exploration of our
property. We are not going to buy or sell any plant or significant equipment. We
do not expect a change in our number of employees.
Limited Operating History; Need for Additional Capital
There is no historical financial information about our company upon which
to base an evaluation of our performance. We are a pre-exploration stage company
and have not generated any revenues from operations. We cannot guarantee we will
be successful in our business operations. Our business is subject to risks
inherent in the establishment of a new business enterprise, including limited
capital resources, possible delays in the exploration of our properties, and
possible cost overruns due to price and cost increases in services. To become
profitable and competitive, we conduct research and exploration of our
properties. We are seeking equity financing to provide for the capital required
to implement our research and exploration phases.
We have no assurance that future financing will be available to us on
acceptable terms. If financing is not available on satisfactory terms, we may be
unable to continue, develop or expand our operations. Equity financing could
result in additional dilution to existing shareholders.
Results of Operations
From Inception on May 24, 2000
We just recently acquired our first interest in lode mining claims. At this
time we have not yet commenced the research and/or exploration stage of our
mining operations on that property. We have paid $5,000 for a mining lease. As
of December 31, 2002 we have experienced operating losses of $92,466.
Plan of Operations
Since inception, we have used our common stock to raise money for our
property acquisition, for corporate expenses and to repay outstanding
indebtedness. Net cash provided by financing activities from inception on May
24, 2000 to March 31, 2001 was $5,500 as a result of proceeds received from our
president and sole director. On April 11, 2001 we received additional cash
financing of $19,500 as a result of proceeds received from our president and
sole director. Our total financing is $100,000 as a result of the investment by
our president and our public offering. Our business activities to date have been
restricted to obtaining a mining engineer's report and preparing this offering.
Prelude's plan of operations for the next 12 months is to pursue a
business acquisition. Pursuant to a memorandum of understanding dated December
11, 2002, and effective January 31, 2003, the Company agreed to acquire 100% of
the issued and outstanding shares of Pascal Energy Inc. ("Pascal"), a Canadian
corporation, by issuing 6,261,276 common shares of the Company on closing and a
further 6,261,674 common shares subject to the Company paying a dividend of not
less than $1,000,000 to its shareholders. Pascal Energy Inc's business is to
provide servicing for the oil and gas industry. This agreement is subject to
closing, which must be on or before April 1, 2003.
Liquidity and Capital Resources
As of the date of this report, we have yet to generate
any revenues from our business operations. Since our inception, Mr. Iverson has
paid $25,000 in cash in exchange for 1,000,000 shares of common stock. We have
also issued 1,500,000 shares of stock pursuant to our Form SB-2 registration
statement. This money has been utilized for organizational and start-up costs
and as operating capital. As of December 31, 2002 we had sustained operating
losses of $92,466.
ITEM 3 CONTROLS AND PROCEDURES
As required by Rule 13a-15 under the Exchange Act, the Company carried out an
evaluation of the effectiveness of the design and operation of the Company's
disclosure controls and procedures within the 90 days prior to the filing date
of this report. This evaluation was carried out under the supervision and with
the participation of the Company's management, including the Company's Chief
Executive Officer and Company's Chief Financial Officer. Based upon that
evaluation, the Company's Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures are effective.
There have been no significant changes in the Company's internal controls or in
other factors, which could significantly affect internal controls subsequent to
the date the Company carried out its evaluation.
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 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, to allow timely decisions
regarding required disclosure.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material legal proceedings to which we (or any of our
officers and directors in their capacities as such) is a party or to which our
property is subject and no such material proceedings is known by our management
to be contemplated.
ITEM 2. CHANGES IN SECURITIES - NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -
NONE
ITEM 5. OTHER INFORMATION - NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -
(a) Exhibits - 99.1
(b) Reports on Form 8-K - NONE
SIGNATURE
In accordance with the requirements of the Securities and Exchange Act of 1934,
as amended, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PRELUDE VENTURES, INC.
Dated: April 10, 2003 /s/ William Iverson
William Iverson
President
CERTIFICATIONS*
I, William Iverson, certify that;
1. I have reviewed this annual report on Form10-QSB of Prelude Ventures, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other facts that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: April 10, 2003
/s/ William Iverson
William Iverson, Chief Executive Officer
Exhibit 99.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, William Iverson, Chief Executive Officer and Chief Financial Officer,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that the Annual Report on Form 10K-SB of
Prelude Ventures, Inc. for the period ended December 31, 2002 fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 and that the information contained in the Annual Report on Form 10-QSB
fairly presents in all material respects the financial condition and results of
operations of Prelude Ventures, Inc.
By:
/s/William Iverson
William Iverson
Chief Executive Officer &
Chief Financial Officer
Date: April 10, 2003
INDEPENDENT AUDITORS' REPORT
To the Stockholders,
Prelude Ventures, Inc.
We have audited the accompanying balance sheet of Prelude Ventures, Inc. (A
Pre-exploration Stage Company) as of December 31, 2002 and the statement of
operations, stockholders' equity and cash flows for the nine month period ended
December 31, 2002 and for the period ended May 24, 2000 (Date of Incorporation)
to December 31, 2002. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform an audit to obtain reasonable assurance 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 audit provides a reasonable basis
for our opinion.
In our opinion, these financial statements referred to above present fairly, in
all material respects, the financial position of Prelude Ventures, Inc. as at
December 31, 2002 and the results of its operations and its cash flows for the
nine month period ended December 31, 2002 and for the period ended May 24, 2000
(Date of Incorporation) to December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.
The accompanying financial statements referred to above have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the financial statements, the Company is in the pre-exploration stage, and
has no established source of revenue and is dependent on its ability to raise
capital from shareholders or other sources to sustain operations. These factors,
along with other matters as set forth in Note 1, raise substantial doubt that
the Company will be able to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Vancouver, Canada "AMISANO HANSON"
March 14, 2003 Chartered Accountants
PRELUDE VENTURES, INC.
(A Pre-exploration Stage Company)
BALANCE SHEETS
December 31, 2002
(Stated in US Dollars)
(Audited) (Unaudited)
December 31, December 31,
ASSETS 2002 2001
------ ---- ----
Current
Cash $ 24,397 $ 2,383
Prepaid expenses 400 -
$ 24,797 $ 2,383
LIABILITIES
Current
Accounts payable $ 7,263 $ 13,828
Loans payable - Note 3 10,000 9,500
17,263 23,328
STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock, $0.001 par value
10,000,000 shares authorized, none outstanding
Common stock, $0.001 par value - Note 4
100,000,000 shares authorized
15,000,000 (2001: 6,000,000) shares outstanding 15,000 6,000
Additional paid-in capital 85,000 19,000
Deficit accumulated during the pre-exploration stage ( 92,466) ( 45,945)
7,534 ( 20,945)
$ 24,797 $ 2,383
Nature and Continuance of Operations - Note 1
Commitments - Note 7
Subsequent Event - Note 7
PRELUDE VENTURES, INC.
(A Pre-exploration Stage Company)
STATEMENTS OF OPERATIONS
for the nine months ended December 31,
2002 and 2001 and for the period May 24, 2000 (Date
of Incorporation) to December 31, 2002
(Stated in US Dollars)
(Audited)
May 24, 2000
(Date of Incor-
(Audited) (Unaudited) poration) to
Nine months ended December 31, December 31,
2002 2001 2002
---- ---- ----
Expenses
Accounting and audit fees $ 11,164 $ 2,824 $ 17,655
Bank charges 144 191 473
Filing fees 25 2,533 7,185
Foreign exchange loss 692 - 692
Legal fees 3,780 22,381 26,858
Management fees 13,000 1,500 22,500
Office and miscellaneous 53 200 660
Resource property costs 3,608 7,580 12,688
Transfer agent fees 2,290 1,435 3,755
Net loss for the period $ ( 34,756) $ ( 38,644) $ ( 92,466)
Loss per share $ ( 0.00) $ ( 0.01)
Weighted average number of shares outstanding 11,208,791 6,000,000
PRELUDE VENTURES, INC.
(A Pre-exploration Stage Company)
STATEMENTS OF CASH FLOWS
for the nine months ended December 31,
2002 and 2001 and for the period May 24, 2000 (Date
of Incorporation) to December 31, 2002
(Stated in US Dollars)
(Audited)
May 24, 2000
(Audited) (Unaudited) (Date of Incor-
Nine months ended poration) to
December 31, December 31,
2002 2001 2002
---- ---- ----
Cash Flows from Operating Activities
Net loss for the period $ ( 34,756) $ ( 38,644) $ ( 92,466)
Changes in non-cash working capital balances
related to operations
Share subscription receivable - 19,500 -
Prepaid expenses ( 400) - ( 400)
Accounts payable and accrued liabilities ( 1,942) 11,631 7,263
Loans payable 10,000 9,500 10,000
( 27,098) 1,987 ( 75,603)
Cash Flows from Financing Activity
Shares issued for cash 44,000 - 100,000
Increase in cash during the period 16,902 1,987 24,397
Cash, beginning of the period 7,495 396 -
Cash, end of the period $ 24,397 $ 2,383 $ 24,397
Supplementary disclosure of cash flow information:
Cash paid for:
Interest $ - $ - $ -
Income taxes $ - $ - $ -
Non-cash Transaction - Note 8
PRELUDE VENTURES, INC.
(A Pre-exploration Stage Company)
STATEMENT OF STOCKHOLDERS'
EQUITY for the period May 24, 2000 (Date of
Incorporation) to December 31, 2002
(Stated in US Dollars)
Deficit
Accumulated
Additional During the
Common Shares Paid-in Share Pre-exploration
-------------------------------
-------------------------------
Number Par Value Capital SubscriptionsStage Total
Capital stock subscribed
pursuant to an offering
memorandum, for cash 6,000,000 $ $ 19,000 $ - $ - $ 25,000
at $0.004 6,000
Net loss for the period - - - - ( (
7,301) 7,301)
Balance, as at March 31, 6,000,000 6,000 19,000 - ( 17,699
2001 7,301)
Stock subscriptions - - - 31,000 - 31,000
received
Net loss for the year - - - - ( (
50,409) 50,409)
Balance, March 31, 2002 6,000,000 6,000 19,000 31,000 ( (
57,710) 1,710)
Stock subscriptions - - - 44,000 - 44,000
received
Shares issued pursuant to
an initial 9,000,000 9,000 66,000 ( - -
public offering at 75,000)
$0.008
Net loss for the period - - - - ( (
34,756) 34,756)
Balance, as at December 15,000,000 $ $ 85,000 $ - $ ( $ 7,534
31, 2002 15,000 92,466)
PRELUDE VENTURES, INC.
(A Pre-exploration Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2002
(Stated in US Dollars)
Note 1 Nature and Continuance of Operations
During the period since incorporation to December 31, 2002 the
Company was in the pre-exploration stage. The Company had entered
into a lease agreement to explore and mine a property located in
the state of Nevada, United States of America and had not yet
determined whether this property contains reserves that were
economically recoverable. Subsequent to December 31, 2002, the
Company abandoned this lease. On December 11, 2002, the Company
signed a memorandum of understanding (Note 7) which will, on
closing, change the Company's business to serving the oil and gas
industry.
These financial statements have been prepared on a going concern
basis. The Company has accumulated a deficit of $92,466 since
inception. Its ability to continue as a going concern is dependent
upon the ability of the Company to generate profitable operations
in the future and/or to obtain the necessary financing to meet its
obligations and repay its liabilities arising from normal business
operations when they come due.
The Company was incorporated in Nevada on May 24, 2000.
Note 2 Summary of Significant Accounting Policies
The financial statements of the Company have been prepared in
accordance with generally accepted accounting principles in the
United States of America. Because a precise determination of many
assets and liabilities is dependent upon future events, the
preparation of financial statements for a period necessarily
involves the use of estimates which have been made using careful
judgement. Actual results may vary from these estimates.
The financial statements have, in management's opinion, been
properly prepared within reasonable limits of materiality and
within the framework of the significant accounting policies
summarized below:
Pre-exploration Stage Company
The Company complies with Financial Accounting Standard Board
Statement No. 7 and the Securities and Exchange Commission's
Exchange Act Guide 7 for its characterization of the Company as
pre-exploration stage.
Mineral Lease
Costs of lease, acquisition, exploration carrying and retaining
unproven mineral lease properties are expensed as incurred.
Note 2 Summary of Significant Accounting Policies - (cont'd)
------------------------------------------
Environmental Costs
Environmental expenditures that relate to current operations are
expensed or capitalized as appropriate. Expenditures that relate
to an existing condition caused by past operations, and which do
not contribute to current or future revenue generation, are
expensed. Liabilities are recorded when environmental assessments
and/or remedial efforts are probable, and the cost can be
reasonably estimated. Generally, the timing of these accruals
coincides with the earlier of completion of a feasibility study or
the Company's commitments to a plan of action based on the then
known facts.
Income Taxes
The Company uses the liability method of accounting for income taxes pursuant to
Statement of Financial Accounting Standards, No. 109 "Accounting for Income
Taxes".
Basic Loss Per Share
The Company reports basic loss per share in accordance with the
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share". Basic loss per share is computed using the weighted
average number of shares outstanding during the period.
Fair Value of Financial Instruments
The carrying value of cash, accounts payable and loans payable
approximates fair value because of the short maturity of these
instruments. Unless otherwise noted, it is management's opinion
that the Company is not exposed to significant interest, currency
or credit risks arising from these financial instruments.
New Accounting Standards
Management does not believe that any recently issued, but not yet
effective accounting standards if currently adopted could have a
material effect on the accompanying financial statements
Note 3 Loans Payable
The loans payable are non-interest bearing, unsecured and have no
specific terms for repayment.
Note 4 Common Stock
On December 12, 2002 the shareholders of the Company approved a
forward split of its common stock on a of 6 new for 1 old basis.
The Company has reflected this forward split retroactively.
Note 5 Deferred Tax Assets
The Financial Accounting Standards Board issued Statement Number
109 in Accounting for Income Taxes ("FAS 109") which is effective
for fiscal years beginning after March 15, 1992. FAS 109 requires
the use of the asset and liability method of accounting of income
taxes. Under the assets and liability method of FAS 109, deferred
tax assts and liabilities are recognized for the future tax
consequences attributable to temporary differences between the
financial statements carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
The following table summarizes the significant components of the
Company's deferred tax assets:
Total
Deferred Tax Assets
Non-capital loss carryforward $ 13,870
Gross deferred tax assets $ 13,870
Valuation allowance for deferred tax asset ( 13,870)
$ -
The amount taken into income as deferred tax assets must reflect
that portion of the income tax loss carryforwards that is likely
to be realized from future operations. The Company has chosen to
provide an allowance of 100% against all available income tax loss
carryforwards, regardless of their time of expiry.
Note 6 Income Taxes
No provision for income taxes has been provided in these financial
statements due to the net loss. At December 31, 2002 the Company
has net operating loss carryforwards, which expire commencing in
2022, totalling approximately $92,466, the benefit of which has
not been recorded in the financial statements.
Note 7 Commitments
a) Mining Lease
By a lease letter agreement effective March 9, 2001 and
amended March 4, 2002 and September 4, 2002, the Company was
granted the exclusive right to explore, develop and mine the
Medicine Project property located in Elko County of the State
of Nevada. The term of the lease was for 20 years, with
automatic extensions so long as the conditions of the lease
are met. The Company was required to pay minimum advance
royalty payments totalling $97,500 on various dates to March
9, 2005 and then $50,000 every March 9 thereafter. The Company
had paid a total of $7,500 in minimum advance royalty
payments.
Subsequent to December 31, 2002, management of the Company
abandoned the mining lease. As the Company terminated the
lease, it is required to pay all federal and state mining
claim maintenance fees for the next assessment year. The
Company is required to perform reclamation work in the
property as required by federal state and local law for
disturbances resulting from the Company's activities on the
property.
b) Business Acquisition
Pursuant to a memorandum of understanding dated December 11,
2002, and effective January 31, 2003, the Company agreed to
acquire 100% of the issued and outstanding shares of Pascal
Energy Inc. ("Pascal"), a Canadian corporation, by issuing
6,261,276 common shares of the Company on closing and a
further 6,261,674 common shares subject to the Company paying
a dividend of not less than $1,000,000 to its shareholders.
Pascal Energy Inc's business is to provide servicing for the
oil and gas industry. This agreement is subject to closing,
which must be on or before April 1, 2003.
Note 8 Non-cash Transaction
Investing and financing activities that do not have a direct
impact on current cash flows are excluded from the cash flow
statement. During the nine month period ended December 31, 2002,
the Company issued 1,500,000 common shares at $0.05 per share for
$75,000 pursuant to a public offering. $31,000 was recorded as
stock subscriptions at March 31, 2002. This transaction has been
excluded from the cash flows statement.