UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to
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Fellows Energy Ltd.
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(Exact name of small business issuer as specified in its charter)
Nevada 000-33321 33-0967648
------ --------- ----------
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification No.)
9323 Vista Serena, Cypress, California 90630
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(Address of principal executive offices)
(714) 220.1806
--------------
(Issuer's Telephone Number)
Fuel Centers, Inc.
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(Former name or former address, if changed since last report)
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practical date. As of November 14, 2003, there were
12,550,450 shares of the issuer's $.001 par value common stock issued and
outstanding.
1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
FELLOWS ENERGY LTD.
(formerly, Fuel Centers, Inc.)
FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
2
FELLOWS ENERGY LTD.
(formerly, Fuel Centers, Inc.)
CONTENTS
PAGE
----
Financial Statements (Unaudited)
Balance Sheet 1
Statements of Operations 2
Statements of Cash Flows 3
Notes to Financial Statements 4
3
FELLOWS ENERGY LTD.
(formerly, Fuel Centers, Inc.)
BALANCE SHEET
SEPTEMBER 30, 2003
(UNAUDITED)
ASSETS
------
CURRENT ASSETS
Cash $ 331,632
Interest receivable 35,308
-------------
Total current assets 366,940
OTHER ASSETS ---
-------------
Total assets $ 366,940
=============
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 11,614
Note payable 35,000
-------------
Total current liabilities 46,614
Convertible note payable 350,000
STOCKHOLDERS' DEFICIT
Preferred stock, $.001 par value;
Authorized shares -- 5,000,000
Issued and outstanding share - 0
Common stock, $.001 par value;
Authorized shares-- 50,000,000
Issued and outstanding shares-- 12,550,450 12,550
Additional paid-in capital 42,770
Accumulated deficit (84,994)
-------------
Total stockholders' deficit (29,674)
-------------
Total liabilities and stockholders' equity $ 366,940
=============
See accompanying notes to financial statements.
FELLOWS ENERGY LTD.
(formerly, Fuel Centers, Inc.)
STATEMENTS OF OPERATIONS
SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------- ---------------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Net revenues $ --- $ --- $ --- $ ---
Operating expenses
Consulting services --- 18 --- 9,104
Legal and professional fees 13,638 57,539 37,235 74,499
Occupancy 605 605 1,815 1,815
Office supplies and expense 44 75 140 1,452
------------ ------------ ------------ ------------
Total operating expenses 14,287 58,237 39,190 86,870
Other income/(expense)
Interest income --- 40,000 --- 41,753
Interest expense (2,372) (40,820) (2,372) (42,609)
------------ ------------ ------------- ------------
Total other income/(expense) (2,372) (820) (2,372) (856)
------------ ------------ ------------- ------------
Loss from operations (16,659) (59,057) (41,562) (87,726)
Provision for income tax expense
(benefit) 1,646 --- 1,646 ---
------------ ------------ ------------ ------------
Net loss/comprehensive loss $ (18,305) $ (59,057) $ (43,208) $ (87,726)
============ ============ ============ =============
Net loss/comprehensive loss per common
share --- basic and diluted
$ --- $ --- $ --- $ ---
============ ============ ============ ============
Weighted average of common shares ---
basic and diluted 12,550,450 12,550,450 12,550,450 8,354,650
============ ============ ============ ============
See accompanying notes to financial statements.
4
FELLOWS ENERGY LTD.
(formerly, Fuel Centers, Inc.)
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)
SEPTEMBER 30,
-----------------------------------
2003 2002
--------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (43,208) $ (87,726)
Adjustments to reconcile net loss to net cash used in operating
activities
Occupancy cost contributed by officer 1,815 1,815
Computer expenses contributed by office --- 35
Legal expenses contributed by officer --- 12,929
Changes in operating assets and liabilities
Decrease (increase) in prepaid expenses 7,880 (7,880)
Increase in interest receivable --- (41,753)
(Decrease) increase in accounts payable
and accrued expenses (20,038) 26,565
Increase in interest payable --- 42,609
--------------- -------------
Net cash used in operating activities (53,551) (53,406)
--------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Payment in exchange of 8% convertible note receivable --- (2,000,000)
--------------- -------------
Net cash used by investing activities --- (2,000,000)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of note payable 35,000 ---
Proceeds from issuance of 8% convertible note payable 350,000 2,041,000
--------------- -------------
Net cash provided by financing activities 385,000 2,041,000
--------------- -------------
NET INCREASE (DECREASE) IN CASH 331,449 (12,406)
CASH, beginning of period 183 12,637
--------------- -------------
CASH, end of period $ 331,632 $ 231
=============== =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid $ 1,646 $ ---
=============== =============
Interest paid $ --- $ 1,789
=============== ==============
See accompanying notes to financial statements.
5
FELLOWS ENERGY LTD.
(formerly, Fuel Centers, Inc.)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)
NOTE 1 - NATURE OF OPERATIONS
Fellows Energy Ltd., formerly Fuel Centers, Inc. (the "Company") is a
business-consulting firm that specializes in strategy and development of
high-volume, multi-revenue source, and retail fuel service stations for the oil
and petroleum industry. The Company was incorporated in the state of Nevada on
April 9, 2001 and is headquartered in Cypress, California.
On November 12, 2003, the Company changed its name to Fellows Energy Ltd.
NOTE 2 - BASIS OF PRESENTATION
The unaudited financial statements included herein have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310(b) of
Regulation S-B. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine months ended September
30, 2003 and 2002 are not necessarily indicative of the results that may be
expected for the years ended December 31, 2003 and 2002. For further
information, these financial statements and the related notes should be read in
conjunction with the Company's audited financial statements for the period ended
December 31, 2002 included in the Company's annual report on Form 10-KSB.
NOTE 3 - NOTES PAYABLE
On June 25, 2003, the Company entered into a loan agreement with an unrelated
third party for a demand loan in the amount of $35,000. Simple interest on the
loan accrues at an annual rate of 8%. Interest and principal are due in full on
December 25, 2003.
On September 9, 2003, the Company received proceeds of $350,000, for issuance of
a convertible note payable to a third party investor. Pursuant to the terms of
the notes, the principal is due and payable on March 9, 2005 together with
interest at the rate of 8% per year. The note also contains a conversion
features that will provide the holder the right to convert all or any portion of
the principal indebtedness into shares of $.001 par value common stock on or
before March 9, 2005. The conversion unit price is $1.00 per share.
NOTE 4 - COMMON STOCK
On June 17, 2002, the Company's Board of directors declared a two and nine
hundredths to one (2:09:1) forward stock split to the stockholders of record as
of June 21, 2002. The stock dividend was paid on June 24, 2002 and resulted in
an increase of the Company's issued and outstanding common stock to 12,550,450
shares.
6
FELLOWS ENERGY LTD.
(formerly, Fuel Centers, Inc.)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)
NOTE 5 - RELATED PARTY TRANSACTIONS
The Company occupies office space provided by its officer. Accordingly,
occupancy costs have been allocated to the Company based on the square foot
percentage assumed multiplied by the officer's total monthly costs. These
amounts are shown in the accompanying statements of operations for the three and
nine months ended September 30, 2003 and 2002 and are considered additional
contributions of capital by the officer and the Company.
NOTE 6 - SUBSEQUENT EVENTS
On November 3, 2003, the Company's Board of Directors approved a 7 for 1 stock
split of the Company's issued and outstanding common stock, which shall be
effectuated through a dividend of six shares for each share of common stock
outstanding as of the record date. The dividend will be payable on November 17,
2003 for shareholders of record on November 14, 2003. After the split, the total
number of the Company's issued and outstanding shares of common stock will be
87,853,150 shares. The common stock will continue to be $.001 par value.
On November 12, 2003, the Company amended the Articles of Incorporation to
change its name from Fuel Centers, Inc. to Fellows Energy Ltd. The amendment
also ratified an increase in the authorized number of shares of its $.001 par
value common stock from 50,000,000 to 100,000,000 shares and an increase in the
number of preferred shares from 5,000,000 to 25,000,000.
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Item 2. Plan of Operation
--------------------------
THIS FOLLOWING INFORMATION SPECIFIES CERTAIN FORWARD-LOOKING STATEMENTS OF
MANAGEMENT OF THE COMPANY. FORWARD-LOOKING STATEMENTS ARE STATEMENTS THAT
ESTIMATE THE HAPPENING OF FUTURE EVENTS AND ARE NOT BASED ON HISTORICAL FACT.
FORWARD-LOOKING STATEMENTS MAY BE IDENTIFIED BY THE USE OF FORWARD-LOOKING
TERMINOLOGY, SUCH AS "MAY", "SHALL", "WILL", "COULD", "EXPECT", "ESTIMATE",
"ANTICIPATE", "PREDICT", "PROBABLE", "POSSIBLE", "SHOULD", "CONTINUE", OR
SIMILAR TERMS, VARIATIONS OF THOSE TERMS OR THE NEGATIVE OF THOSE TERMS. THE
FORWARD-LOOKING STATEMENTS SPECIFIED IN THE FOLLOWING INFORMATION HAVE BEEN
COMPILED BY OUR MANAGEMENT ON THE BASIS OF ASSUMPTIONS MADE BY MANAGEMENT AND
CONSIDERED BY MANAGEMENT TO BE REASONABLE. OUR FUTURE OPERATING RESULTS,
HOWEVER, ARE IMPOSSIBLE TO PREDICT AND NO REPRESENTATION, GUARANTY, OR WARRANTY
IS TO BE INFERRED FROM THOSE FORWARD-LOOKING STATEMENTS.
THE ASSUMPTIONS USED FOR PURPOSES OF THE FORWARD-LOOKING STATEMENTS SPECIFIED IN
THE FOLLOWING INFORMATION REPRESENT ESTIMATES OF FUTURE EVENTS AND ARE SUBJECT
TO UNCERTAINTY AS TO POSSIBLE CHANGES IN ECONOMIC, LEGISLATIVE, INDUSTRY, AND
OTHER CIRCUMSTANCES. AS A RESULT, THE IDENTIFICATION AND INTERPRETATION OF DATA
AND OTHER INFORMATION AND THEIR USE IN DEVELOPING AND SELECTING ASSUMPTIONS FROM
AND AMONG REASONABLE ALTERNATIVES REQUIRE THE EXERCISE OF JUDGMENT. TO THE
EXTENT THAT THE ASSUMED EVENTS DO NOT OCCUR, THE OUTCOME MAY VARY SUBSTANTIALLY
FROM ANTICIPATED OR PROJECTED RESULTS, AND, ACCORDINGLY, NO OPINION IS EXPRESSED
ON THE ACHIEVABILITY OF THOSE FORWARD-LOOKING STATEMENTS. WE CANNOT GUARANTY
THAT ANY OF THE ASSUMPTIONS RELATING TO THE FORWARD-LOOKING STATEMENTS SPECIFIED
IN THE FOLLOWING INFORMATION ARE ACCURATE, AND WE ASSUME NO OBLIGATION TO UPDATE
ANY SUCH FORWARD-LOOKING STATEMENTS.
CRITICAL ACCOUNTING POLICY AND ESTIMATES. Our Management's Discussion and
Analysis of Financial Condition and Results of Operations section discusses our
consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. On an on-going basis, management evaluates
its estimates and judgments, including those related to revenue recognition,
accrued expenses, financing operations, and contingencies and litigation.
Management bases its estimates and judgments on historical experience and on
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions. The most significant accounting estimates inherent in
the preparation of our financial statements include estimates as to the
appropriate carrying value of certain assets and liabilities which are not
readily apparent from other sources. These accounting policies are described at
relevant sections in this discussion and analysis and in the notes to the
financial statements included in our Quarterly Report on Form 10-QSB for the
period ended September 30, 2003.
Our business is to offer a full range of business consulting services in the
retail automobile fueling industry. Our plan has been to offer advice and
assistance on issues of business strategy and development of high-volume,
multi-revenue source, retail automobile fueling centers or "Superstations".
Superstations typically include retail fueling facilities, quick service
restaurants, car wash facilities and a convenience store. We intended to provide
services to owners of existing fueling stations who desire to convert their
facilities into a Superstation, as well as to parties who are not currently
engaged in the retail sale of motor fuel but wish to establish fueling
facilities. We anticipated that a majority of our revenue would be derived from
fees paid by clients for our advice, services and business development products.
We have also contemplated acquiring a third party, merging with a third party or
pursuing a joint venture with a third party in order to support our development.
Accordingly, we have been researching potential acquisitions or other suitable
business partners which will assist us in realizing our business objectives. We
8
hope to enter into various asset acquisitions with another entity, or other
third parties which we hope will diversify our business operations and increase
our profitability and improve our total value to our shareholders. We cannot
guaranty that we will acquire any other third party in lieu of that transaction,
or that in the event that we acquire another entity, this acquisition will
increase the value of our common stock. We intend to continue providing our
business consulting services to the retail automotive fueling industry.
LIQUIDITY AND CAPITAL RESOURCES. We had cash of $331,632 as of September 30,
2003, along with interest receivable of $35,308. Our total current assets as of
September 30, 2003 were $366,940, as were our total assets. Our total current
liabilities were $46,614 as of September 30, 2003, which was represented by
accounts payable and accrued expenses of $11,614 and $35,000 in a note payable
with an unrelated third party, which we entered into on September 25, 2003,
which is due on December 25, 2003 and bears interest at the rate of 8%. On
September 9, 2003, we have received the proceeds of a convertible note payable
in the amount of $350,000, for issuance of a convertible note payable to a third
party investor. Pursuant to the terms of the note, the principal is due and
payable on March 9, 2005 together with interest at the rate of 8% per year. The
note also contains a conversion features that will provide the holder the right
to convert all or any portion of the principal indebtedness into shares of $.001
par value common stock on or before March 9, 2005. The conversion unit price is
$1.00 per share. We had no other long term commitments or contingencies.
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002.
-------------------------------------------------------
REVENUES. For the three month period ended September 30, 2003, we realized no
revenues from providing consulting services.
OPERATING EXPENSES. For three month period ended September 30, 2003, our total
operating expenses were $14,287. Those expenses were represented by $13,638 in
legal and professional fees, and $605 in occupancy expenses and $44 in office
supplies expenses. We also had $2,372 in interest expense. Therefore, for the
three month period ended September 30, 2003, we experienced a loss from
operations of $16,659. With $1,646 as a provision for income tax expense, we had
a net loss of $18,305. This is in comparison to the three month period ended
September 30, 2002, where our total operating expenses were $58,237. That amount
was represented by $18 in consulting services, $57,539 in legal and professional
fees, and $605 in occupancy expenses and $75 in office supplies expenses. We
also had $40,000 in interest income and $40,820 in interest expenses, making our
net loss $59,057. During 2002, we entered into an agreement to acquire another
company however, the transaction was never consummated. Our operation expenses
were significantly lower for the three month period ended September 30, 2003, as
compared to the same period ended September 30, 2002 because we were in the
process of making arrangements to conclude that acquisition, for which we
incurred significant general and administrative expenses. In order to either
continue operations or enter into a similar agreement with another entity, we
anticipate we will continue to incur significant general and administrative
expenses.
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2003.
---------------------------------------------------
REVENUES. For the nine month period ended September 30, 2003, we realized no
revenue from our operations.
OPERATING EXPENSES. For the nine month period ended September 30, 2003, our
operating expenses were $39,190. This was represented primarily by legal and
professional fees of $37,235, along with occupancy expenses of $1,815 and office
supplies and expenses of $140. In comparison, for the nine month period ended
September 30, 2002, our operating expense were $86,870, which were represented
mostly by legal and professional fees of $74,499, consulting expenses of $9,104,
occupancy expenses of $1,815 and office expenses of $1,452. We also had interest
income of $41,753 and interest expense of $42,609 making our net loss from
operations $87,726. The decrease in operating expenses is due to the fact that
during 2002 we were positioned to acquire another company.
OUR PLAN OF OPERATION FOR THE NEXT TWELVE MONTHS. We had cash of $331, 632 as of
September 30, 2003. In the opinion of management, available funds will satisfy
our working capital requirements through the next twelve months. Our forecast
for the period for which our financial resources will be adequate to support our
operations involves risks and uncertainties and actual results could fail as a
result of a number of factors. Because we were not able to complete the proposed
acquisition during 2002 as described, we raised additional capital to continue
operations.
9
We have been researching potential acquisitions or other suitable business
partners which will assist us in realizing our business objectives. We hope to
enter into various asset acquisitions with another entity, or other third
parties which we hope will diversify our business operations and increase our
profitability and improve our total value to our shareholders. We cannot
guaranty that we will acquire any other third party in lieu of that transaction,
or that in the event that we acquire another entity, this acquisition will
increase the value of our common stock. We intend to continue providing our
business consulting services to the retail automotive fueling industry.
We are not currently conducting any research and development activities and do
not anticipate conducting such activities in the near future. We do not
anticipate hiring additional employees or independent contractors unless we are
able to expand our current operations. Until recently, we had been focusing our
efforts on completing the acquisition described herein. We do not anticipate
that we will purchase or sell any significant equipment.
ITEM 3. CONTROLS AND PROCEDURES
-------------------------------
(a) Evaluation of disclosure controls and procedures. We maintain controls and
procedures designed to ensure that information required to be disclosed in the
reports that we file or submit under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the rules and forms of the Securities and Exchange Commission. Based upon
their evaluation of those controls and procedures performed as of September 30,
2003, our chief executive officer and the principal financial officer concluded
that our disclosure controls and procedures were adequate.
(b) Changes in internal controls. There were no significant changes in our
internal controls or in other factors that could significantly affect these
controls subsequent to the date of the evaluation of those controls by the chief
executive officer and principal financial officer.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
--------------------------
None.
ITEM 2. CHANGES IN SECURITIES.
------------------------------
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
----------------------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
----------------------------------------------------------
None.
ITEM 5. OTHER INFORMATION
--------------------------
Subsequent to the reporting period covered by this report, we filed a report on
Form 8-K on November 14, 2003 to report the following items under Item 5 --
Other Events and Regulation FD Disclosure and Item 6 - Resignation of Directors.
In addition, that Form 8-K contained as Exhibit 17.1, a copy of the resignation
and Exhibit 99, a press release announcing the same information.
SHAREHOLDER VOTE. On November 10, 2003 at a special shareholders meeting, a
majority of shareholders of our common stock voted to approve the filing of the
Certificate of Amendment to our Articles of Incorporation to effect the
following:
o Changing our corporate name to Fellows Energy Ltd.
o Increasing our authorized common stock to 100,000,000 shares and our
preferred stock to 25,000,000 shares
o Allowing for future shareholder meetings to be held by written consent in
lieu of a meeting
o Ratifying our 2003 Stock Option Plan
10
Our Certificate of Amendment was filed with the State of Nevada on November 12,
2003, giving effect to the name change, increase in authorized common and
preferred stock and conduct of shareholders meetings by written consent.
NEW SYMBOL AND CUSIP NUMBER. Concurrent with these changes, we have a new symbol
and CUSIP number. Our new symbol will be changed from "FCTE" to "FLWE" and our
CUSIP number has changed from 35951M-10-6 to 314347-10-5.
RESIGNATION OF DIRECTOR. In addition, on November 11, 2003, one of our directors
resigned. This resignation is not the result of any disagreement with the
registrant on any matter relating to the Registrant's operations, policies or
practices. A copy of Mr. Shukur's resignation is filed as Exhibit 17.1 to our
report on Form 8-K filed on November 14, 2003.
STOCK SPLIT. On November 3, 2003, our Board of Directors approved a 7 for 1
stock split of our issued and outstanding common stock which shall be
effectuated through a dividend of six shares for each share of common stock
outstanding as of the record date. The dividend will be payable on November 17,
2003 for shareholders of record on November 14, 2003. After the split, the total
number of our issued and outstanding shares of common stock will be 87,853,150
shares. Fractional shares are to be rounded upward.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------
(a) Exhibits.
31. Rule 13a-14(a)/15d-14(a) Certifications.
32. Section 1350 Certifications.
(b) Reports on Form 8-K
None during the reporting period.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Fellows Energy Ltd.,
a Nevada corporation
November 14, 2003 By: /s/ John R. Muellerleile
-----------------------------------
John R. Muellerleile
Chief Executive Officer, President,
Chief Financial Officer, Secretary, Director
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