UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 2005
------------------
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to ____________.
Commission file number 333-111656
GRAN TIERRA ENERGY, INC.
------------------------
(Exact name of small business issuer as specified in its charter)
Nevada Applied For
------ -----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
10th Floor, 610-8th Avenue S.W.
Calgary, Alberta, Canada T2P 1G5
--------------------------------
(Address of principal executive offices)
(403) 537-3218
--------------
(Small business issuer's telephone number)
Check whether the small business issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the small business issuer
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |_| No |X|
As of November 16, 2005, the latest practicable date, 21,816,980 of the issuer's
common shares, $.001 par value, were issued and outstanding.
Transitional Small Business Disclosure Format (Check one):
Yes |_| No |X|
TABLE OF CONTENTS
Page
PART I -FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Balance Sheet .................................................. 3
Statements of Operations ....................................... 4
Statement of Retained Earnings (Deficit) ....................... 5
Statement of Cash Flows ........................................ 6
Statement of Stockholders' Equity .............................. 7
Notes to Financial Statements .................................. 8
Item 2. Plan of Operation..........................................16
Item 3. Controls and Procedures....................................18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..........................................18
Item 2. Unregistered Sales of Equity Securities....................18
Item 3. Defaults Upon Senior Securities............................18
Item 4. Submission of Matters to a Vote of Security Holders........18
Item 5. Other Information..........................................19
Item 6. Exhibits...................................................19
SIGNATURES ...................................................................20
2
GOLDSTRIKE INC.
(A Nevada Corporation)
(An Exploration Stage Company)
Balance Sheets
(In U.S. Dollars)
================================================================================
September 30, December 31,
ASSETS 2005 2004
------------- ------------
(Unaudited - (Audited)
Prepared by Management)
Cash $ 1,497,161 $ 7,399
Interest Receivable (Note 9) 60,449 --
Loan Receivable (Note 9) 6,655,198 --
-----------------------------------------------------------------------------------------
$ 8,212,808 $ 7,399
=========================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 1,200 $ 630
Loan from related party (Note 7) 35,040 --
-----------------------------------------------------------------------------------------
36,240 630
-----------------------------------------------------------------------------------------
Capital Stock
Authorized:
75,000,000 common shares at $0.001 par value
Issued and fully paid (Note 8)
23,335,438 common shares
par value 8,341,216 3,300
additional paid-in capital 28,250 28,250
-----------------------------------------------------------------------------------------
8,369,466 31,550
Deficit, accumulated during the exploration stage (192,898) (24,781)
-----------------------------------------------------------------------------------------
8,176,568 6,769
-----------------------------------------------------------------------------------------
$ 8,212,808 $ 7,399
=========================================================================================
Going Concern: Note 1
The Accompanying Notes are an Integral Part of These Financial Statements
3
GOLDSTRIKE INC.
(A Nevada Corporation)
(An Exploration Stage Company)
Balance Sheets
(In U.S. Dollars)
-------------------------------------------------------------------------------
From Date
of Inception Nine Months Three Months
On June 9, Ended Ended
2003 to September 30, September 30,
September 30, ---------------------------- ----------------------------
2005 2005 2004 2005 2004
------------ ------------ ------------ ------------ ------------
Interest Revenue $ 60,449 $ 60,449 -- $ 60,449 --
-------------------------------------------------------------------------------------------------------------
$ 60,449 $ 60,449 -- $ 60,449 --
$ 8,754 $ -- $ -- $ -- $ --
-------------------------------------------------------------------------------------------------------------
Audit fees 9,261 6,875 600 1,200 --
Bank charges 1,594 120 1,021 38 369
Consulting fees 57,675 57,675 -- 57,247 --
Incorporation costs 751 -- -- -- --
Legal fees 156,066 148,827 -- 144,660 --
Office costs 2,482 1,136 910 1,136 284
Transfer agent and filing fees 15,806 13,510 1,441 1,962 358
Loss on foreign exchange 958 423 515 262 --
-------------------------------------------------------------------------------------------------------------
244,593 228,566 4,487 206,505 1,011
-------------------------------------------------------------------------------------------------------------
Total Expenses 253,347 228,566 4,487 206,505 1,011
-------------------------------------------------------------------------------------------------------------
Net (Loss) for the Period $ (192,898) $ (168,117) (4,487) $ (146,056) (1,011)
=============================================================================================================
Loss per share
Basic and Diluted $ (0.05) $ (0.04) $ 0.00 $ (0.02) $ 0.00
=============================================================================================================
Weighted Average Number of Common Shares Outstanding
Basic and Diluted 3,642,654 4,359,343 3,300,000 6,443,485 3,300,000
=============================================================================================================
The Accompanying Notes are an Integral Part of These Financial Statements
4
GOLDSTRIKE INC.
(A Nevada Corporation)
(An Exploration Stage Company)
Balance Sheets
(In U.S. Dollars)
--------------------------------------------------------------------------------
From Date
of Inception Nine Months Three Months
On June 9, Ended Ended
2003 to September 30, September 30,
September 30, ------------------------ ------------------------
2005 2005 2004 2005 2004
---------- ---------- ---------- ---------- ----------
Retained Earnings
(Defecit) beginning
of period $ -- $ (24,781) $ (19,380) $ (46,842) $ (22,856)
Net (Loss) for the
Period (192,898) (168,117) (4,487) (146,056) (1,011)
-----------------------------------------------------------------------------------------
Retained Earnings (Deficit)
end of period $ (192,898) $ (192,898) $ (23,867) $ (192,898) $ (23,867)
=========================================================================================
The Accompanying Notes are an Integral Part of These Financial Statements
5
GOLDSTRIKE INC.
(A Nevada Corporation)
(An Exploration Stage Company)
Balance Sheets
(In U.S. Dollars)
--------------------------------------------------------------------------------
From Date
of Inception Nine Months Three Months
On June 9, Ended Ended
2003 to September 30, September 30,
September 30, --------------------------- ---------------------------
2005 2005 2004 2005 2004
------------ ------------ ------------ ------------ ------------
Net earnings (loss) for the period $ (192,898) $ (168,117) $ (4,487) $ (146,056) $ (1,011)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Shares issued for mineral
property expenses 50 -- -- -- --
Changes in operating assets and liabilities, net of
effects from acquired companies
Share subscription receivable -- -- 626 -- --
Account receivable (60,449) (60,449) (5,000) (60,449) --
Accounts payable & accrued liabilities 1,200 570 (7,389) (5,135) --
----------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in)
Operating Activities (252,097) (227,996) (16,250) (211,640) (1,011)
----------------------------------------------------------------------------------------------------------------------------------
Investing Activities -- -- -- -- --
----------------------------------------------------------------------------------------------------------------------------------
Financing Activities
Capital stock subscribed for cash 8,369,416 8,337,916 -- 8,337,916 --
Loan from related party 35,040 35,040 (500) 25,040
Loan to Gran Tierra (6,655,198) 6,655,198) (6,655,198)
----------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in)
Financing Activities 1,749,258 1,717,758 (500) 1,707,758 --
----------------------------------------------------------------------------------------------------------------------------------
Cash increase (decrease)
During the Period 1,497,161 1,489,762 (16,750) 1,496,118 (1,011)
-- 7,399 20,033 1,043 4,294
----------------------------------------------------------------------------------------------------------------------------------
Cash, End of the Period $ 1,497,161 $ 1,497,161 $ 3,283 $ 1,497,161 $ 3,283
==================================================================================================================================
The Accompanying Notes are an Integral Part of These Financial Statements
6
GOLDSTRIKE INC.
(A Nevada Corporation)
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2005
(In U.S. Dollars)
(Unaudited)
Note 1. ORGANIZATION AND NATURE OF BUSINESS
Goldstrike Inc. (the "Company") was incorporated on June 9, 2003 in the
State of Nevada, to pursue opportunities in the field of mineral
exploration. June 9, 2003 is also the inception date of the Company.
Going Concern
These financial statements have been prepared in accordance with generally
accepted accounting principles in the United States of America applicable
to a going concern which assume that the Company will realize its assets
and discharge its liabilities in the normal course of business. The
Company has incurred losses since inception of $192,898 to September 30,
2005 and has working capital of $8,176,568 as at September 30, 2005. These
factors create doubt as to the ability of the Company to continue as a
going concern. Realization values may be substantially different from the
carrying values as shown in these financial statements should the Company
be unable to continue as a going concern. Management is in the process of
identifying sources for additional financing to fund the ongoing
development of the Company's business. (See Note 8 Subsequent event)
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
These financial statements have been prepared in accordance with
Accounting Principles Generally Accepted in the United States ("USGAAP").
Exploration stage company
The Company is an exploration stage company as it does not have an
established commercial deposit and is not in the production stage.
Use of estimates
The preparation of financial statements in conformity with USGAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
7
GOLDSTRIKE INC.
(A Nevada Corporation)
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2005
(In U.S. Dollars)
(Unaudited)
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
Cash
Cash consists of cash on deposit with the Company's bankers.
Income Taxes
Provisions for income taxes are based on taxes payable or refundable for
the current year and deferred taxes on temporary differences between the
amount of taxable income and pretax financial income and between the tax
bases of assets and liabilities and their reported amounts in the
financial statements. Deferred tax assets and liabilities are included in
the financial statement at currently enacted income tax rates applicable
to the period in which the deferred tax assets and liabilities are
expected to be realized or settled as prescribed in FASB Statement No.
109, Accounting for Income Taxes. As changes in tax laws or rates are
enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes.
Compensated absences
Employees of the Company are entitled to paid vacations, sick days and
other time off depending on job classification, length of service and
other factors. It is impractical to estimate the amount of compensation
for future absences, and accordingly, no liability has been recorded in
the accompanying financial statements. The Company's policy is to
recognize the costs of compensated absences when paid to employees.
Net profit per share
Goldstrike adopted Statement of Financial Accounting Standards No. 128
("FASB 128") that requires the reporting of both basic and diluted
earnings per share. Basic earnings per share is computed by dividing net
income available to common shareowners by the weighted average number of
common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur if securities or other
contacts to issue common stock were exercised or converted into common
stock. In accordance with FASB 128, any anti-dilutive effects on net loss
per share are excluded.
8
GOLDSTRIKE INC.
(A Nevada Corporation)
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2005
(In U.S. Dollars)
(Unaudited)
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
Disclosure about fair value of financial instruments
Goldstrike has financial instruments, none of which are held for trading
purposes. Goldstrike estimates that the fair value of all financial
instruments at September 30, 2005, as defined in FASB 107, does not differ
materially from the aggregate carrying values of its financial instruments
recorded in the accompanying balance sheet. The estimated fair value
amounts have been determined by the Company using available market
information and appropriate valuation methodologies. Considerable judgment
is required in interpreting market data to develop the estimates of fair
value, and accordingly, the estimates are not necessarily indicative of
the amounts that the Company could realize in a current market exchange.
Concentration of credit risk
Financial instruments that potentially subject Goldstrike to a significant
concentration of credit risk consists primarily of cash which is not
collateralized. Goldstrike limits its exposure to credit loss by placing
its cash with high credit quality financial institutions.
Other Comprehensive Income
There is no other comprehensive income to September 30, 2005.
Foreign currency translation
The accounts of Goldstrike are translated into US Dollars on the following
basis:
o Monetary assets and liabilities are translated at the current rate
of exchange.
o The weighted average exchange rate for the period is used to
translate revenue, expenses, and gains or losses from the functional
currency to the reporting currency.
o Gains or losses on re-measurement are recognized in current net
income.
o Gains or losses from foreign currency transactions are recognized in
current net income.
o Fixed assets are measured at historical exchange rates that existed
at the time of the transaction.
o Depreciation is measured at historical exchange rates that existed
at the time the underlying related asset was acquired.
o There are no cumulative currency translation adjustments to
September 30, 2005.
9
GOLDSTRIKE INC.
(A Nevada Corporation)
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2005
(In U.S. Dollars)
(Unaudited)
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
Stock-based Compensation
In December 2002, the Financial Accounting Standards Board issued
Financial Accounting Standard No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure" ("SFAS No. 148"), an amendment
of Financial Accounting Standard No. 123 "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). The purpose of SFAS No. 148 is to: (1)
provide alternative methods of transition for an entity that voluntarily
changes to the fair value based method of accounting for stock-based
employee compensation, (2) amend the disclosure provisions to require
prominent disclosure about the effects on reported net income of an
entity's accounting policy decisions with respect to stock-based employee
compensation, and (3) to require disclosure of those effects in financial
information.
The Company has elected to continue to account for stock-based employee
compensation arrangements in accordance with the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", ("APB No. 25") and comply with the disclosure provisions of
SFAS No. 123 as amended by SFAS No. 148 as described above. In addition,
in accordance with SFAS No. 123 the Company applies the fair value method
using the Black-Scholes option-pricing model in accounting for options
granted to consultants. Under APB No. 25, compensation expense for
employees is recognized based on the difference, if any, on the date of
grant between the estimated fair value of the Company's stock and the
amount an employee must pay to acquire the stock. Compensation expense is
recognized immediately for past services and pro-rata for future services
over the option-vesting period. To September 30, 2005 the Company has not
granted any stock options.
The Company accounts for equity instruments issued in exchange for the
receipt of goods or services from other than employees in accordance with
SFAS No. 123 and the conclusions reached by the Emerging Issues Task Force
in Issue No. 96-18. Costs are measured at the estimated fair market value
of the consideration received or the estimated fair value of the equity
instruments issued, whichever is more reliably measurable. The value of
equity instruments issued for consideration other than employee services
is determined on the earliest of a performance commitment or completion of
performance by the provider of goods or services as defined by EITF 96-18.
The Company has also adopted the provisions of the Financial Accounting
Standards Board Interpretation No.44, Accounting for Certain Transactions
Involving Stock Compensation - An Interpretation of APB Opinion No. 25
("FIN 44"), which provides guidance as to certain applications of APB 25.
No disclosures relating to stock based compensation have been included
with the accompanying financial statements, as no stock options have been
granted to directors and employees.
10
GOLDSTRIKE INC.
(A Nevada Corporation)
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2005
(In U.S. Dollars)
(Unaudited)
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
General and Administration Expenses
General and administration expenses are recorded on an accrual basis as
incurred.
Mineral property acquisition costs and deferred exploration expenditures
a) Mineral property acquisition costs are capitalized in accordance
with FAS-141 subject, however to impairment pursuant to FAS-144.
Exploration costs and mine development costs to be incurred,
including those to be incurred in advance of commercial production
and those incurred to expand capacity of proposed mines, are
expensed as incurred while Goldstrike is in the exploration stage.
Mine development costs to be incurred to maintain production will be
expensed as incurred. Depletion and amortization expense related to
capitalized mineral properties, exploration costs and mine
development costs will be computed using the units-of-production
method based on proved and probable reserves.
b) FAS-141 states that the total carrying amount of mineral rights
should be reported as a separate component of property, plant, and
equipment on the face of the financial statements or in the notes to
the financial statements. Impairment is defined in FAS-144 as the
condition that exists when the carrying amount of a long-lived asset
exceeds its fair value. An impairment loss is recognized only if the
carrying amount of a long-lived asset is not recoverable and exceeds
its fair value. The Company reviews the carrying value of the
mineral property for impairment whenever events and circumstances
indicate that the carrying value of an asset may not be recoverable
from the estimated future cash flows expected to result from its use
and eventual disposition. In cases where undiscounted expected
future cash flows are less than the carrying value, an impairment
loss is recognized equal to an amount by which the carrying value
exceeds the fair value of assets. The factors considered by
management in performing this assessment include current operating
results, trends, and prospects, as well as the effects of
obsolescence, demand, competition, and other economic factors.
c) Where properties are disposed of, the sales proceeds are, firstly,
applied as a recovery of mineral property acquisition costs, and
secondly, as a gain or loss recorded in current operations.
11
GOLDSTRIKE INC.
(A Nevada Corporation)
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2005
(In U.S. Dollars)
(Unaudited)
Note 3. MINERAL PROPERTIES
On June 30, 2003, Goldstrike signed a Mineral Property Sale Agreement with
Joseph Eugene Leopold Lindinger ("Eugene"), whereby Goldstrike acquired a
100% undivided interest in the BIZ Properties (BIZ1, BIZ2, BIZ6 and BIZ7
(Tenure Number 366276, 369518, 369719 and 370056)), located in the
Kamloops Mining Division, in the Province of British Columbia, Canada, and
Goldstrike agreed to the following terms and conditions:
a) Pay to Eugene $3,584 and issue to Eugene 50,000 common shares
(issued) at the price of $0.001 per share for $50 on execution of
the agreement, for a total of $3,634.
b) Within the 120 day period after the effective date of June 30, 2003,
pay $2,514 to Eugene to complete an assessable exploration work
program of sufficient value in order to maintain the property for at
lease one year past the current claim expiry date. Within 90 days of
the current claim expiry date of November 1, 2003, pay an additional
$2,286 for the remainder of the completed work program and a
completed assessment report.
c) Pay all applicable claim maintenance recording fees as part of the
property maintenance requirements.
d) Pay expenses related to this property, including the abovementioned
expenses, total $8,754 from date of inception.
Note 4. INCOME TAXES
There is a loss of $192,898 carried forward that may be applied towards
future profits.
The Company does not have any income tax liabilities during the current
year and, accordingly, no income taxes are recorded. The potential income
tax benefits associated with losses incurred by the Company have not been
recorded in the accounts as future taxation as they are offset by
valuation reserves due to uncertainty of utilization of tax losses.
The income tax effect of temporary differences comprising the deferred tax
assets and deferred tax liabilities on the accompanying consolidated
balance sheets is a result of the following:
September 30,
------------------------
2005 2004
-------- --------
Deferred tax assets $ 65,585 $ 8,115
Valuation allowance (65,585) (8,115)
-------- --------
Net deferred tax assets $ -- $-
-------- --------
12
GOLDSTRIKE INC.
(A Nevada Corporation)
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2005
(In U.S. Dollars)
(Unaudited)
Note 4. INCOME TAXES (Cont'd)
A reconciliation between the statutory federal income tax rate and the
effective income rate of income tax expense is as follows:
September 30,
-----------------
2005 2004
------ ------
Statutory federal income tax rate -34.0% -34.0%
Valuation allowance 34.0% 34.0%
------ ------
Effective income tax rate 0.0% 0.0%
====== ======
Note 5. FINANCIAL INSTRUMENTS
Goldstrike's financial instruments consist of cash and accounts payable
and accrued liabilities and loan from related party. It is management's
opinion that Goldstrike is not exposed to significant interest, currency
or credit risks arising from these financial instruments. The fair value
of these financial statements approximates their carrying values.
Note 6. PENSION AND EMPLOYMENT LIABILITIES
Goldstrike does not have liabilities as at September 30, 2005, for
pension, post-employment benefits or post-retirement benefits. Goldstrike
does not have a pension plan.
Note 7. RELATED PARTY TRANSACTIONS
During the current quarter ended September 30, 2005, a loan of $35,040 was
received from a related party who is a Director and Officer of the
Company. This loan bears no interest, is unsecured, and has no specific
terms of repayment.
Note 8 SHARE ISSUANCE
During the period, the Company entered into discussions with Gran Tierra
Energy, Inc ("Gran Tierra") regarding the possibility of a business
combination involving the two companies (see Note 10). Gran Tierra is a
private international oil and gas exploration and production company,
incorporated in Alberta, Canada. To facilitate the discussions, the
Company determined to provide financing to Gran Tierra to enable Gran
Tierra to consummate certain property acquisitions in Argentina for a
purchase price of approximately $7,000,000 (the "Argentine Acquisition").
The Company derived the funds necessary to provide this financing from the
proceeds of the initial closing of a private offering of its securities.
As of September 30, 2005, a total of 10,422,395 units ("Units") were sold
in connection with the private offering at the purchase price of $0.80 per
Unit. The Units consisted of one share of the common stock of the Company
and one warrant to purchase one-half of one share of common stock of the
Company at an exercise price of $0.625 per one-half share. Proceeds from
the offering totaled $8,337,916.
13
GOLDSTRIKE INC.
(A Nevada Corporation)
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2005
(In U.S. Dollars)
(Unaudited)
Note 8 SHARE ISSUANCE (Cont'd)
On August 30, 2005, the Company's Board of Directors approved a stock
dividend for the purpose of affecting a 3.91304347826 for 1 stock split of
the issued shares of common stock of the Company, resulting in the
issuance of 9,613,043 shares. The record date and payment date on the
dividend was August 31, 2005.
Note 9 LOAN AND INTEREST RECEIVABLE
The Company's financing of the Argentine Acquisition was evidenced by a
loan agreement (the "Bridge Loan Agreement"), dated as of September 1,
2005, pursuant to which the Company agreed to make loans to Gran Tierra in
an amount up to the proceeds received in the private placement offering of
Units (the "Loan Commitment"). At September 30, 2005, the amount of the
Loan Commitment was $8,337,916. On the execution and delivery of the Loan
Agreement, Gran Tierra borrowed $6,665,198.30 under the Bridge Loan
Agreement. The note evidencing the loans made to Gran Tierra bears
interest at a rate of 9% per annum on the amount of the Loan Commitment
and is payable monthly. At September 30, 2005, this interest amount is
accrued.
Note 10. SUBSEQUENT EVENTS
With reference to Note 8, there was an additional closing of the private
placement offering of Units on October 7, 2005 and an additional private
offering of Units which closed on October 28, 2005, the proceeds of which
were used to provide additional working capital to Gran Tierra.
With reference to Note 9, effective as of the date of the additional
closing of the private placement offering, the Loan Commitment was
increased from $8,337,916 to $9,313,492, and Grand Tierra borrowed an
additional $800,000 under the Bridge Loan Agreement. Effective as of the
date of the additional closing of the private placement offering, the Loan
Commitment was increased from $9,313,492 to $10,313,492, and Grand Tierra
borrowed an additional $700,000 under the Bridge Loan Agreement.
On November 10, 2005, pursuant to a share purchase agreement among the
Company, Gran Tierra and holders of shares of capital stock in Gran
Tierra, and an assignment agreement between the Company and Goldstrike
Exchange Co. ("Exchangco"), a Canadian corporation indirectly-owned by the
Company, the Company acquired 96.03% of the outstanding shares of capital
stock in Gran Tierra in exchange for which, each Gran Tierra stockholder,
at their election, received either 1.5873016 shares of common stock of
Goldstrike or 1.5873016 shares of exchangeable stock of Goldstrike
Exchange Co, and the Company changed its name to Gran Tierra Energy Inc.
(the "Share Exchange"). Exchangeco intends to carry out a compulsory
acquisition transaction in accordance with the Business Corporations Act
to acquire the Gran Tierra shares not already acquired as the result of
the share purchase. After completion of such transaction, Gran Tierra will
become a indirectly-owned subsidiary of the Company.
14
GOLDSTRIKE INC.
(A Nevada Corporation)
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2005
(In U.S. Dollars)
(Unaudited)
Note 10. SUBSEQUENT EVENTS (Cont'd)
In conjunction with the closing of the Share Exchange, 2,347,827 shares of
common stock of the Company previously owned by Dr. Ken Cai were retired.
Simultaneous with the consummation of the Share Exchange, the Company,
Gran Tierra, Goldstrike Callco, a corporation incorporated under the laws
of Alberta Canada ("Callco") and Olympia Trust Company, a Canadian
corporation (the "Trustee") executed a voting exchange and support
agreement to make provision for and establish a procedure whereby voting
rights in the Company will be exercisable by the Trustee for the benefit
of the holders of exchangeable shares. The Company issued to the Trustee,
for the benefit of the beneficiaries, one share of special voting stock,
at $.001 par value and Callco granted to the Trustee the right, under
certain circumstances, to require Callco to purchase the exchangeable
shares.
Immediately prior to the Share Exchange, the Company transferred to
Goldstrike Leasco Inc., a newly-formed Nevada corporation wholly owned by
the Company ("Leaseco") all of the Company's rights and interests in the
Mineral Property Sale Agreement previously entered into by the Company.
The Mineral Property Sale Agreement was filed by the Company with the
Securities and Exchange Commission on March 24, 2005.
Simultaneous with the closing of the Share Exchange, upon the terms and
conditions of a split-off agreement (the "Split-off Agreement") among the
Company, Leasco, Dr. Yenyou Zheng (the "Split-off Purchaser") and Gran
Tierra, the Company sold all the issued and outstanding shares of capital
stock of Leasco to the Split-off Purchaser in exchange for all of the
shares of common stock owned by the Split-off Purchaser and the assumption
by the Split-off Purchaser of all responsibilities for any debts,
obligations and liabilities of Leasco.
In connection with the consummation of the Share Exchange, the address of
our principal executive offices was changed to 10th Floor, 610-8th Avenue
S.W., Calgary, Alberta, Canada T2P 1G5 and the telephone number of our
executive offices was changed to (403) 537-3218.
With reference to Note 8 and Note 9 and in connection with the
consummation of the Share Exchange, the bridge loan and accrued interest
amounts were forgiven.
15
Item 2: Plan of Operation
Forward Looking Statements
This Quarterly Report on Form 10-QSB contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934. This Quarterly Report
includes statements regarding our plans, goals, strategies, intent, beliefs or
current expectations. These statements are expressed in good faith and based
upon a reasonable basis when made, but there can be no assurance that these
expectations will be achieved or accomplished. These forward looking statements
can be identified by the use of terms and phrases such as "believe," "plan,"
"intend," "anticipate," "target," "estimate," "expect," and the like, and/or
future-tense or conditional constructions ("will," "may," "could," "should,"
etc.). Items contemplating or making assumptions about, actual or potential
future sales, market size, collaborations, and trends or operating results also
constitute such forward-looking statements.
Although forward-looking statements in this Quarterly Report reflect the good
faith judgment of management, forward-looking statements are inherently subject
to known and unknown risks, business, economic and other risks and uncertainties
that may cause actual results to be materially different from those discussed in
these forward-looking statements. Readers are urged not to place undue reliance
on these forward-looking statements, which speak only as of the date of this
Quarterly Report. We assume no obligation to update any forward-looking
statements in order to reflect any event or circumstance that may arise after
the date of this Quarterly Report, other than as may be required by applicable
law or regulation. Readers are urged to carefully review and consider the
various disclosures made by us in the our reports filed with the Securities and
Exchange Commission which attempt to advise interested parties of the risks and
factors that may affect our business, financial condition, results of operation
and cash flows. This discussion should be read in conjunction with the
consolidated financial statements including the related footnotes. If one or
more of these risks or uncertainties materialize, or if the underlying
assumptions prove incorrect, our actual results may vary materially from those
expected or projected.
We were incorporated in the State of Nevada on June 9, 2003 under the name
Goldstrike, Inc. to pursue opportunities in the field of mineral exploration. On
June 30, 2003, pursuant to a Mineral Property Sale Agreement, we acquired a 100%
undivided mineral interest in properties located in the Province of British
Columbia, Canada (the "Goldstrike Property").
In July 2005, we retained P & L Geological Services ("P&L") to conduct the first
phase of exploration on the Goldstrike Property. On its review and sampling, P&L
indicated that the Goldstrike Property did not host readily available areas of
significant mineralization for follow-up exploration. Based on P&L's report,
Goldstrike decided not to conduct any further exploration on these mineral
claims and began to review other potential resource and non-resource assets for
acquisition.
On November 10, 2005, pursuant to a share purchase agreement among the Company,
Gran Tierra Energy Inc., an Alberta corporation ("Gran Tierra Alberta") and
holders of shares of capital stock in Gran Tierra Alberta and an assignment
agreement between the Company and Goldstrike Exchange Co, a Canadian corporation
indirectly-owned by the Company ("Exchangeco"), Exchangeco acquired 96.03% of
the outstanding shares of capital stock in Gran Tierra Alberta ("Gran Tierra
Shares") in exchange for which each stockholder of Gran Tierra Alberta, at their
election, received either 1.5873016 shares of common stock of the Company
("Common Stock") or 1.5873016 shares of exchangeable stock of Exchangeco
("Exchangeable Shares"); and the Company changed its name from Goldstrike, Inc.
to Gran Tierra Energy Inc. (referred to hereinafter as the "Company" or "Gran
Tierra") (the "Share Purchase"). Exchangeco intends to carry out a compulsory
acquisition transaction in accordance with the Business Corporations Act
(Alberta) to acquire the Gran Tierra Shares not already acquired as the result
of the Share Purchase. After completion of such transaction, Gran Tierra Alberta
will become an indirectly-owned subsidiary of the Company.
16
Gran Tierra Alberta is a private international oil and gas exploration and
production company, incorporated in Canada in January 2005 that commenced
business activity in May 2005 with capital obtained through its initial
financing of approximately $1.8 million. Gran Tierra Alberta was founded to
capitalize on the experience of its management team, to access exploration and
development opportunities and leverage strategic relationships to build a
diverse international oil and gas company, initially focusing on business
opportunities in South America with the intent to expand its activities in the
future into North Africa, the Middle East and Southeast Asia.
On September 1, 2005, Gran Tierra Alberta acquired certain interests in
producing and non-producing properties in Argentina consisting of a 14%
participation in several producing oil fields governed by a single joint
venture, and a 50% interest in two additional properties.
On August 31, 2005 the Company's president, C.E.O and a director, Dr. Ken Cai,
resigned from these positions. Dr. Jeff Yenyou Zheng was appointed president and
C.E.O. On September 1, 2005, Greg Yanke was appointed as a director. On November
2, 2005, Dr. Yenyou Zheng, resigned from his positions. On November 2, 2005, we
appointed Greg Yanke as our president, chief executive officer, secretary and
treasurer. The current members of the Board of Directors and management team
assumed their positions concurrent with the Share Purchase consummated on
November 10, 2005.
Capital expenditures for the Palmar Largo joint venture, the most significant
property acquired in Argentina, have been unusually high in 2005 due principally
to the drilling of two wells, contributing to a capital budget of approximately
$20.8 million for the year ($2.9 million for a 14% share). Gran Tierra's share
of expenditures to December 31, 2005 is expected to be approximately $2.2
million and is being funded partly from cash flow and partly from available
cash. Following the completion of the second well expected in December 2005,
cash flow surpluses are expected to return. Plans for the Palmar Largo joint
venture for 2006 include a modest expenditure budget, with no additional
drilling. The preliminary capital budget for 2006 is $1.2 million to Gran
Tierra.
Gran Tierra Alberta completed its initial equity financing to acquire funds for
general and administrative expenses incurred as it assessed opportunities and
identified an appropriate first acquisition. We completed a private placement
offering via Goldstrike, the proceeds of which were used to fund the Argentine
acquisition and provide additional working capital. Operating cash flow
generated by the Argentina properties will allow Gran Tierra to expand its
activities and capabilities by hiring additional staff.
We plan on continuing to assess opportunities and identify appropriate
acquisitions. Current acquisition targets include "tuck-in" opportunities in
Argentina as well as acquisitions which will provide us with new country
entries. Identification and successful completion of such acquisitions will
provide additional cash flow which will allow us to expand our activities and
capabilities, assume a role as an operator and advance exploration and
development opportunities.
We expect an increase in general and administrative expenditures to
approximately $200,000 per month, equivalent to expected operating cash flow. We
have expanded our staff in Calgary from three to six employees with additions in
the areas of geoscience, accounting and administration, and are targeting one or
two additional hires. We are establishing an office in Buenos Aires, Argentina
and our Vice President of Latin America is re-locating from Quito, Ecuador. Our
staff complement in Buenos Aires is expected to increase to three before
year-end, with an operational focus. We are targeting two additional hires in
Buenos Aires early in 2006.
17
We expect our net cash position to stabilize in January 2006 (following the
drilling of the Palmar Largo well). A portion of Gran Tierra's current cash
balance will cover the projected cash deficit to that time.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements.
Item 3. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
The term "disclosure controls and procedures" is defined in Rules
13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). This term refers to the controls and procedures of a
company that are designed to ensure that information required to be
disclosed by a company in the reports that it files under the Exchange Act
is recorded, processed, summarized, and reported within the required time
periods.
Our former chief executive officer and principal accounting officer, Dr.
Yenyou Zheng, has evaluated the effectiveness of our disclosure controls
and procedures as of the end of the period covered by this report.
Based upon his evaluation of our controls, Dr. Yenyou Zheng has concluded
that, as of that date, our disclosure controls and procedures were
effective at ensuring that required information will be disclosed on a
timely basis in our reports filed under the Exchange Act.
(b) Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the
period covered by this report that has materially affected, or is
reasonably likely to materially affect, our internal control over
financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Unregistered Sales of Equity Securities & Use of Proceeds
None
Item 3. Defaults on Senior Securities
None
18
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits
The following exhibits are filed with or incorporated as part of this report as
required by Item 601 of Regulation S-B:
--------------------------------------------------------------------------------------------------------------------
Exhibit No. Description Incorporated by Reference to Filings Indicated
--------------------------------------------------------------------------------------------------------------------
3.1 Articles of Incorporation Exhibit 3.1 to Company's Annual Report on Form
10-KSB filed on March 24, 2005
--------------------------------------------------------------------------------------------------------------------
3.2 Certificate Amending Articles of Incorporation Exhibit 3.2 to Company's Annual Report on Form
10-KSB filed on March 24, 2005
--------------------------------------------------------------------------------------------------------------------
3.3 Bylaws Exhibit 3.3 to Company's Annual Report on Form
10-KSB filed on March 24, 2005
--------------------------------------------------------------------------------------------------------------------
3.4 Certificate Amending Articles of Incorporation Exhibit 3.4 to Company's Current Report on Form
8-K filed on November 10, 2005
--------------------------------------------------------------------------------------------------------------------
4.1 2005 Equity Incentive Plan Exhibit 10.11 to Company's Current Report on
Form 8-K filed on November 10, 2005
--------------------------------------------------------------------------------------------------------------------
10.1 Share Purchase Agreement Exhibit 10.1 to Company's Current Report on Form
8-K filed on November 10, 2005
--------------------------------------------------------------------------------------------------------------------
10.2 Assignment Agreement Exhibit 10.2 to Company's Current Report on Form
8-K filed on November 10, 2005
--------------------------------------------------------------------------------------------------------------------
10.3 Voting Exchange and Support Agreement Exhibit 10.3 to Company's Current Report on Form
8-K filed on November 10, 2005
--------------------------------------------------------------------------------------------------------------------
10.4 Split Off Agreement Exhibit 10.4 to Company's Current Report on Form
8-K filed on November 10, 2005
--------------------------------------------------------------------------------------------------------------------
10.5 Employment Agreement between the Company and Exhibit 10.5 to Company's Current Report on Form
Dana Coffield 8-K filed on November 10, 2005
--------------------------------------------------------------------------------------------------------------------
10.6 Employment Agreement between the Company and Exhibit 10.6 to Company's Current Report on Form
James Hart 8-K filed on November 10, 2005
--------------------------------------------------------------------------------------------------------------------
10.7 Employment Agreement between the Company and Exhibit 10.7 to Company's Current Report on Form
Max Wei 8-K filed on November 10, 2005
--------------------------------------------------------------------------------------------------------------------
10.8 Employment Agreement between the Company and Exhibit 10.8 to Company's Current Report on Form
Rafael Orunesu 8-K filed on November 10, 2005
--------------------------------------------------------------------------------------------------------------------
31.1 Rule 13a-14(a)/15d-14(a) Certification of
Chief Executive Officer*
--------------------------------------------------------------------------------------------------------------------
31.2 Rule 13a-14(a)/15d-14(a) Certification of
Chief Executive Officer*
--------------------------------------------------------------------------------------------------------------------
32 Section 1350 Certifications*
--------------------------------------------------------------------------------------------------------------------
----------------
* filed herewith
19
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereby duly authorized on November 21,
2005.
GRAN TIERRA ENERGY, INC.
/s/ Dana Coffield
----------------------------
By: Dana Coffield
Its: Chief Executive Officer
/s/ James Hart
----------------------------
By: James Hart
Its: Chief Financial Officer
EXHIBIT INDEX
--------------------------------------------------------------------------------------------------------------------
Exhibit No. Description Incorporated by Reference to Filings Indicated
--------------------------------------------------------------------------------------------------------------------
3.1 Articles of Incorporation Exhibit 3.1 to Company's Annual Report on Form
10-KSB filed on March 24, 2005
--------------------------------------------------------------------------------------------------------------------
3.2 Certificate Amending Articles of Incorporation Exhibit 3.2 to Company's Annual Report on Form
10-KSB filed on March 24, 2005
--------------------------------------------------------------------------------------------------------------------
3.3 Bylaws Exhibit 3.3 to Company's Annual Report on Form
10-KSB filed on March 24, 2005
--------------------------------------------------------------------------------------------------------------------
3.4 Certificate Amending Articles of Incorporation Exhibit 3.4 to Company's Current Report on Form
8-K filed on November 10, 2005
--------------------------------------------------------------------------------------------------------------------
4.1 2005 Equity Incentive Plan Exhibit 10.11 to Company's Current Report on
Form 8-K filed on November 10, 2005
--------------------------------------------------------------------------------------------------------------------
10.1 Share Purchase Agreement Exhibit 10.1 to Company's Current Report on Form
8-K filed on November 10, 2005
--------------------------------------------------------------------------------------------------------------------
10.2 Assignment Agreement Exhibit 10.2 to Company's Current Report on Form
8-K filed on November 10, 2005
--------------------------------------------------------------------------------------------------------------------
10.3 Voting Exchange and Support Agreement Exhibit 10.3 to Company's Current Report on Form
8-K filed on November 10, 2005
--------------------------------------------------------------------------------------------------------------------
10.4 Split Off Agreement Exhibit 10.4 to Company's Current Report on Form
8-K filed on November 10, 2005
--------------------------------------------------------------------------------------------------------------------
10.5 Employment Agreement between the Company and Exhibit 10.5 to Company's Current Report on Form
Dana Coffield 8-K filed on November 10, 2005
--------------------------------------------------------------------------------------------------------------------
10.6 Employment Agreement between the Company and Exhibit 10.6 to Company's Current Report on Form
James Hart 8-K filed on November 10, 2005
--------------------------------------------------------------------------------------------------------------------
10.7 Employment Agreement between the Company and Exhibit 10.7 to Company's Current Report on Form
Max Wei 8-K filed on November 10, 2005
--------------------------------------------------------------------------------------------------------------------
10.8 Employment Agreement between the Company and Exhibit 10.8 to Company's Current Report on Form
Rafael Orunesu 8-K filed on November 10, 2005
--------------------------------------------------------------------------------------------------------------------
31.1 Rule 13a-14(a)/15d-14(a) Certification of
Chief Executive Officer*
--------------------------------------------------------------------------------------------------------------------
31.2 Rule 13a-14(a)/15d-14(a) Certification of
Chief Executive Officer*
--------------------------------------------------------------------------------------------------------------------
32 Section 1350 Certifications*
--------------------------------------------------------------------------------------------------------------------
* filed herewith