librarySLC
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1999
[ ] TRANSITION REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_______________ to _______________
Commission file number 0-28184
MASON OIL COMPANY, INC.
(Exact name of small business issuer in its charter)
Utah 37-109974
_______________________ __________________________________
(State of incorporation) (I.R.S. Employer Identification No.)
6337 Ravenwood Drive, Sarasota, FL 34243
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (941) 351-3102
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
___________________ _________________________________________
None None
Securities registered pursuant to Section 12(g) of the Exchange Act:
$0.001 par value Common Stock
_____________________________
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
-
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year consisted of interest
income in the amount of approximately $23,000.
The aggregate market value of the voting Common Stock held by non-affiliates of
the issuer (treating all executive officers and directors of the issuer, for
this purpose, as if they may be affiliates of the issuer) was approximately $
724,244 as of August 31, 1999 (based on the average bid and asked price of such
Common Stock).
Ten million, eight hundred ninety thousand, five hundred and four (10,890,504)
shares of the issuer's Common Stock were outstanding as of August 31, 1999.
Transitional Small Business Disclosure Format (check one):
Yes _______ No ___X____
<PAGE>
MASON OIL COMPANY, INC.
For Fiscal Year Ended June 30, 1999
TABLE OF CONTENTS
Form 10-KSB
PART I
Item Page
1 Description of Business. 1
2. Description of Property 4
3. Legal Proceedings 9
4. Submission of Matters to a Vote of Security 9
Holders
PART II
5. Market for Issuer's Common Equity and Related 9
Stockholder Matters
6. Management's Discussion and Analysis or Plan of 10
Operation
7. Financial Statements 12
8. Changes in and Disagreements with Accountants on 13
Accounting and Financial Disclosure
PART III
9. Directors, Executive Officers, Promoters and
Control Persons;
14
Compliance with Section 16(a) of the Exchange Act
10. Executive Compensation 15
11. Security Ownership of Certain Beneficial Owners 15
and Management
12. Certain Relationships and Related Transactions 16
13. Exhibits and Reports on Form 8-K 16
Signatures 18
<PAGE>
PART I
This Form 10-KSB contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual results could differ materially from
those set forth in the forward-looking statements. The forward looking
statements include statements that reflect management's intentions, plans,
beliefs, expectations or predictions of future operations, conditions, and
potential future capitalization of the Company. These forward-looking statements
are based on current expectations that involve numerous risks and uncertainties.
Assumptions relating to such current expectations involve judgments with respect
to, among other things, future economic, competitive and market conditions and
future business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company. Although the
Company believes that the assumptions underlying the forward-looking statements
are reasonable, any of the assumptions could be inaccurate and therefore there
can be no assurance that the forward-looking statements included in this Form
10-KSB will prove to be accurate. In light of the significant uncertainties
inherent in the forward-looking statements included herein, the inclusion of
such information should not be regarded as a representation of the Company or
any other person that the objectives and plans of the Company will be achieved.
Item 1. Description of Business.
General. Mason Oil Company, Inc., a Utah corporation formed in 1980 (the
"Company"), has attempted to position itself to participate in the acquisition,
development and operation of selected oil and gas properties, primarily in
Australia and Southeast Asia. From 1981 until 1996, the Company was dormant,
with no significant assets or liabilities. Controlling interest in the Company
was acquired in September, 1996 by Paul B. Ingram and John L. Naylor, for the
purpose of establishing a vehicle for the identification, exploration,
development and operation of promising oil and gas properties. Since the date of
such transaction, the Company has investigated potential petroleum exploration
and development prospects and explored how it might participate in the
development and operation of such properties.
In October of 1996, Mr. Ingram and Mr. Naylor sold a 100% working interest in
two South Australian oil and gas exploration licenses, identified as Petroleum
Exploration Licenses 61 and 63 ("PELs 61 and 63", and collectively the "PELs"),
to the Company, subject to a 3% royalty interest retained by Mr. Ingram and Mr.
Naylor, in exchange for 6,000,000 shares of the Company's stock. The PELs are
held by Hemley Exploration Pty. Ltd., an Australian corporation ("Hemley")
which, as a result of the transaction with Mr. Ingram and Mr. Naylor, became a
wholly owned subsidiary of the Company. At the time of the transaction, the PELs
constituted the only significant assets of Hemley, and Hemley had not conducted
any significant operations with respect to the PELs or otherwise.
The initiation of exploration activities under the PELs was delayed for a time
because of negotiations with the aboriginal tribes claiming interests in the
geographic areas covered by the PELs, and later because of industry pricing
issues and financial constraints. A native group asserted rights to title of the
land subject to PEL 63. The Company resolved such claims by entering into an
Access Agreement with this native group (the "PEL 63 Access Agreement"). The PEL
63 Access Agreement sets forth the terms upon which the Company has agreed with
the native group regarding access to PEL 63 for purposes of conducting
exploration and production activities. The Company is obligated under the PEL 63
Access Agreement to make certain payments in return for rights to use the area.
The Company has performed aeromagnetic surveys in the geographic area covered by
the PELs, and has compiled and interpreted data resulting from such surveys.
This data will assist the Company in pursuing possible drilling activities if
and when (i) it obtains requisite finding, and (ii) warranted by oil prices and
demand, as well as applicable economic and market conditions. To date the
Company has been unable to secure financing to enable it to commence exploration
or drilling activities in the areas covered by the PELs. As a result of the
failure to proceed with such activities as originally contemplated, the
Company's continuing rights under the PELs are in jeopardy.
Given its present cash position, the Company anticipates that it can satisfy its
cash requirements, at current operating levels until the end of 1999.
Sale of Drilling Rig Interest. During the last fiscal year, the Company
completed the sale of its one-half interest in a Cabot/Franks 1000 drilling rig.
The rig was purchased when drilling equipment in the vicinity of the PELs was
not readily available. Due to the deflated market price for oil at the time,
however, the Company decided to not transport the rig to Australia for use in
exploration activities of the Company's PELs. Should the Company arrive at a
position to initiate exploration activities, it will undertake to contract the
drilling work out to third parties. The Company's interest in the rig was sold
back to the operator, T. D. International, for a $300,000 note receivable which
had a balance of approximately $111,000 at June 30, 1999. T.D. International
also returned to the Company 806,666 shares of the Company's Common Stock which
it acquired at the time of sale of the interest in the rig. The Company retained
title to a 50 man portable drilling camp valued at approximately $122,000.
Indonesian Venture. Over the past three years the Company has been exploring
various ventures in Indonesia as a means of acquiring proven reserves to broaden
the base of the Company's operations. The Company is a party to a Memorandum of
Agreement (MOA) with a banking group called Patrindo of India, which is intended
to result in an 80% management interest in a joint venture with the banking
group under a Technical Assistance Contract (TAC) with Pertamina, the Indonesian
national oil company. The MOA covers 195 square kilometers, including two
previously discovered and partially developed fields in the Bintuni Basin of
Irian Jaya (Western New Guinea).
The joint venture working interest would entitle the joint venture to 67% of the
production (with the Company to receive 80% of the joint venture proceeds) with
33% going to the state of Indonesia. Two independent reports show these fields
have in excess of 500 million barrels of original oil in place (OOIP) average
reserves. These detailed reports also estimate that the 6 million barrels
produced between 1955 and 1961 represents less than 2% of the total that could
be produced from these fields. In addition, there are two structures in this
Bintuni Basin block that have never been explored. There were a total of 53
producing wells in the two fields at the time they were closed down in 1961.
The Company believes that it would need $2.4 million U. S. to reopen the
Indonesian field and prove that substantially similar pressures and depth of the
oil/water interface exist today when compared with the time the wells were
closed. The Company has so far been unable to obtain the funding required to
initiate any reopening or exploration activities in the Indonesian field covered
by the MOA, and the proving period initially allowed has expired, so that the
Company's remaining rights under the MOA and TAC, if any, are uncertain.
Political instabilities and civil unrest in Indonesia, as well as unfavorable
oil prices, have contributed to the Company's inability to obtain funding for
this project and present substantial obstacles to pursuit of exploration and
production activities in Indonesia at the present time.
Recent increases in world oil prices have prompted the Company to continue to
pursue development of the joint venture regarding the MOA and TAC. The Company
is continuing due diligence on its joint venture partner and understands that
Pertamina is conducting an audit of the joint venture partner's assets. Under
the terms of the MOA, with the approval of Pertamina, and subject to the receipt
of required funding, negotiations on the project could move forward quickly.
General Risks and Uncertainties; Possible Change in Business Focus
Currently the Company is not involved in any oil and gas production activities.
There can be no assurance that in the future the Company will locate proven
reserves, whether associated with the PELs, the MOA or otherwise. The Company
does not have the funding necessary to undertake any active exploration or
drilling programs, and there can be no assurance that the Company will be able
to obtain such financing. Even if it were able to obtain the necessary
financing, the prevailing economic and market conditions at the time may not
warrant an active exploration program. Furthermore, exploration and development
activities undertaken, if any, may not result in the establishment of producing
wells. Even with proven reserves positively identified, the feasibility of
recovery is strongly dependent upon world market prices for oil and gas. There
can be no assurance that amounts capitalized as acquisition, exploration and
development costs will be recoverable through future operations.
Given the Company's inability to obtain financing for the pursuit of its
proposed exploration and production projects, it is considering possible
alternatives to its current business strategy. The Company is evaluating
potential relationships and acquisition opportunities, both within the petroleum
industry and with non-petroleum related businesses.
Operating Hazards and Insurance. The oil and gas business involves a variety of
operating risks, including the risks of fire, explosions, blow outs, pipe
failures, abnormally pressured formations and environmental hazards such as oil
spills, gas leaks, ruptures or discharges of toxic gases, the occurrence of any
of which could result in substantial losses due to injury or loss of life,
severe damage to or destruction of property, natural resources and equipment,
pollution or other environmental damage, clean up responsibilities, regulatory
investigations and penalties and suspension of operations. Upon the initiation
of development activities, the Company will seek to obtain a gas and oil lease
operator policy that would insure the Company against certain risks associated
with drilling, completing and operating any wells. There can be no assurance
that such insurance would be available to the Company or, if it is obtained,
that it would be adequate to cover any losses or exposure to liability. Once the
Company commences exploration and development activities, even if it obtains
insurance as customary in the industry, such insurance coverage would not
provide complete coverage against all operating risks. An uninsured or partially
insured claim, if successful and of sufficient magnitude, could have a material
adverse effect on the Company and its financial condition. Any difficulty in
obtaining or maintaining insurance coverage may impair the Company's ability to
engage in its proposed business activities.
Regulation. The oil and gas industry is extensively regulated by national,
regional and local authorities in each jurisdiction in which the Company may be
involved in exploration, development and production activities. In particular,
oil and gas production operations and economics are affected by price controls,
environmental protection statutes, governmental control of extraction
activities, tax statutes and other laws and regulations relating to the
petroleum industry, as well as by changes in such laws, changing administrative
regulations and the interpretations and application of such laws, rules and
regulations. Oil and gas industry legislation and agency regulation are under
constant review for amendment and expansion for a variety of political, economic
and other reasons. Numerous governmental and regulatory authorities, national,
regional and local, are empowered to issue rules and regulations impacting the
oil and gas industry, some of which carry substantial penalties for failure to
comply. The legal and regulatory framework for conducting petroleum exploration,
development and production activities in foreign countries is also subject to
change due to changes in the parties in power. The Company's proposed activities
would be subject to the risks associated with political instabilities. The
regulatory burdens and political risks associated with the oil and gas industry
increase the cost of doing business and, consequently, affect a participant's
ability to achieve profitability.
Competition. The oil and gas industry is highly competitive in all of its
phases. The Company will encounter competition from other oil and gas companies
in all areas of its operations, including the acquisition of interests in
exploration and development properties, the marketing of oil and gas that may be
produced, and the availability of drilling rigs. Many of these competitors
possess greater financial, technical and other resources than the Company.
Competition for acquisition of rights to exploration and development of
properties is affected by the amount of funds available to the Company and
information about producing properties available to the Company. Competition may
also be presented by alternative fuel sources, including heating oil and other
fossil fuels. There has been increased competition for lower risk development
opportunities and available sources of financing.
Environmental Regulation. Various national, regional and local laws and
regulations covering the discharge of materials into the environment or
otherwise relating to the protection of the public health and the environment
may affect the Company's operations, expenses and costs. The Company does not
believe that its environmental risks will be materially different from those of
comparable oil and gas companies operating in similar geographic areas.
Nevertheless, no assurance can be given that environmental laws will not, in the
future, result in the curtailment in production activities or materially
increase the costs of exploration, development or production, or otherwise
adversely effect the Company's operations and financial condition.
Bankruptcy Proceeding. As has been disclosed in prior filings, on December 31,
1985, the Company filed a Chapter 11 Petition for Voluntary Bankruptcy in the
United States Bankruptcy Court for the District of Utah, Central Division. At
the Company's request, on January 14, 1988 the bankruptcy proceedings were
dismissed.
Employees. The Company has two employees, both of which work full time for the
Company. The employees are Paul Ingram and John Naylor, both officers of the
Company, who between themselves handle all administrative functions and the
investigation and evaluation of potential exploration and development projects.
Item 2. Description of Property.
General. The Company's primary asset is its interests in the PELs, which
were issued by the State of South Australia, and access agreements providing the
Company with access to the property covered by the PELs, negotiated with the
Anangu Pitjantjatjari aboriginal tribe.
The area covered by the PELs is roughly described as a portion of the Eastern
Officer Basin, consisting of 17,188 square kilometers (4.2 million acres),
situated approximately 200 miles south of Alice Springs and approximately 700
miles north of Adelaide. Although the location is remote from populated areas, a
modern railway and a year-round, sealed highway service the site, and provide
access from the site to a refinery at Alice Springs to the north, and a refinery
and deep water port at Port Augusta and Adelaide to the south. The terrain is
relatively flat, making access to rail and highway uncomplicated. Due to the
remoteness of the site, it is anticipated that development would cause minimal
disturbance to human population, flora or fauna. Climatic conditions typically
allow operations 350 days of the year.
Grant and Area of PELs. The PELs were granted to Hemley on 23 May 1996, pursuant
to the terms of the Petroleum Act 1940 (South Australia) (the "Petroleum Act").
Under Australian law, minerals and petroleum are vested in the Government;
rights to explore and extract petroleum within mainland South Australia are
conferred under and regulated by the Petroleum act and regulations made by the
South Australian Government under that Act.
In broad terms, the PELs confer the right to explore for gas and liquid
hydrocarbons within the license area, but not to undertake commercial production
of any reserves which are discovered. The initial term of each PEL is five (5)
years, ending on 22 May 2001. The PELs were issued by the South Australian
Department of Mines and Energy (the "Department") on behalf of the Minister for
Mines and Energy.
PEL 61 covers an area of approximately 6,258 square kilometers, and falls
entirely within the land area known as the "Pitjantjatjara Lands." These lands
are subject of the Pitjantjatjara Land Rights Act 1981 (South Australia) (the
"Pitjantjatjara Act"). Pursuant to this Act, ownership of the Pitjantjatjara
Lands had been vested in a corporation, Anangu Pitjantjatjara, on behalf of the
local traditional occupiers of the land. The vesting of these lands in Anangu
Pitjantjatjara, and the terms of the Pitjantjatjara Act, do not prevent Hemley
Exploration from exercising its rights under PEL 61. However, in order to comply
with the Pitjantjatjara Act, Hemley Exploration is subject to an Access
Agreement with Anangu Pitjantjatjara, which further regulates Hemley
Exploration's activities on the PEL area.
PEL 63 covers an area which is adjacent to (but outside of) the Pitjantjatjara
Lands area. The total area covered by the license is 10,930 square kilometers,
though the license is expressed only to apply to specified categories of land
within this area. A native group has asserted rights to land subject to this
license agreement. To resolve such conflict, the Company has entered into the
PEL 63 Access Agreement with the native group which regulates Hemley
Exploration's activities on the PEL area.
Petroleum Exploration Licenses - Rights and Obligations. The PELs have been
issued for an initial term of five years, subject to the license renewal
provisions contained in the Petroleum Act. The Petroleum Act prescribes minimum
exploration expenditure requirements to apply during the initial term of an
Exploration License. However, in the case of each of PELs 61 and 63, a detailed
plan setting out minimum levels of exploration for each year of the initial term
of the PEL is included in the License conditions. The plan, as revised in 1999
by the South Australian Department of Mines and Energy, includes future
estimated expenditure levels for each remaining year under the PELs, as follows:
PEL 61 PEL 63
Year ending 22 May A$ A$
2000 3,000,000 3,000,000
Year ending 22 May 2,450,000 2,500,000
2001
Total A$5,450,000 A$5,500,000
Under the terms of each License, if Hemley fails to comply with the
prescribed exploration requirements in any year of the term, the responsible
Minister may (at his discretion) cancel or vary the License or, alternatively,
vary these expenditure requirements. The South Australian Department of Mines
and Energy ("MESA") has modified the requirements associated with the Company's
PELs, as referenced above.
In brief, some of the principal rights and obligations attaching to Hemley
as the holder of a Petroleum Exploration License are as follows:
(a) the Licensee has the exclusive right to engage in
petroleum exploration on the subject area;
(b) the Licensee must comply with general conservation and
rehabilitation obligations set out in the Petroleum Act and
Regulations;
(c) the Licensee is subject to ongoing reporting obligations to the
Department in respect of work undertaken and expenditure
incurred;
(d) the Licensee must also consult with and obtain the approval of
the Department in respect of work to be undertaken for the
remainder of the term; and
(e) where any part of the License area is being used for certain
other purposes, such as for the cultivation of crops or as
pasture, the Licensee must first obtain the consent of the
relevant occupier or user.
A most important obligation of Hemley as the Licensee under the PELs is to
notify the Minister upon the discovery of petroleum (whether liquid or gaseous)
within the relevant License area. Particulars of the quantity and quality of the
petroleum must be provided as soon as practicable. The rights of Hemley to apply
for a Production License in this event are referenced below.
Extension of Term of PEL. The Petroleum Act makes provision for the
renewal of Petroleum Exploration Licensees for further terms of five years.
Hemley would be entitled to apply for and obtain such an extension at the end of
the current term of the PELs, subject to satisfying the Department that all of
the obligations applicable to the initial term have been satisfied. Upon any
such renewal, the existing area of the PEL would be required to be reduced by
not less than 25% by the excision of area(s) from the existing area of the
License.
PEL 61 and PEL 63 - Access Agreements. As referenced above, the area of
PEL 61 is subject to the Pitjantjatjara Act. Under the terms of that Act, in
order for any exploration or production activities to be undertaken on the
Pitjantjatjara Lands under (inter alia) the Petroleum Act, the permission of
Anangu Pitjantjatjara must first be obtained. The Access Agreement for PEL 61
dated 5 March 1996, between Anangu Pitjantjatjara (on the one hand) and Paul
Ingram and John Naylor (on the other), sets out the terms upon which permission
has been granted for both exploration and production operations within the area
of PEL 61. The PEL 61 Access Agreement was entered into by Messrs. Ingram and
Naylor prior to the grant of the PEL, but the Agreement contemplates the
substitution of a company owned by them. Accordingly, Hemley is now bound by the
terms of the PEL 61 Access Agreement. The area of PEL 63 is subject to the
assertion of various rights by a native group indigenous to the area. The
Company has entered into the PEL 63 Access Agreement with such group in order to
resolve the claims raised and permit the Company to continue its exploration and
production activities. The PEL 63 Access Agreement dated May 1, 1998 among
Yankunytjatjara Council, Antakirinja Land Management, Paddy Jones, Jean Woods,
Tilly Waye, Sadie Singer, Lallie Lennon, Johnny Cullinan, William Herbert Lennon
Snr., Eileen Crombie, Ian Crombie, Keith Smith and Hemley sets out the terms
upon which the Company may conduct exploration and production activities.
The Access Agreements generally provide for certain payments to be made,
based on:
(a) annual exploration expenditure on the License area; and
(b) the well-head value of any petroleum produced from the License
area.
The Access Agreements also entitle each respective group to take up a
participatory interest of up to 10% in any Petroleum Production License which
may be granted in respect to any petroleum discovery within the area of PEL 61.
Grant of Petroleum Production License. As the holder of PELs 61 and 63,
Hemley enjoys priority rights in respect of any petroleum reserves which it
discovers within the area of either license. Provided that it is in compliance
with its obligations under the relevant PEL and the Petroleum Act at the time of
discovery, Hemley will be entitled to apply for a Petroleum Production License
for the area within which the petroleum is discovered. In this event, and
subject to the foreign investment and native title considerations referenced
below, the Minister will be obliged to grant the License, unless the reserves or
quality of petroleum are not sufficient to warrant production. If the holder of
a Petroleum Exploration License makes an economic discovery, and fails to apply
for a Production License within twelve (12) months, the responsible Minister may
then grant a Production License in respect of the field to any third party.
A Petroleum Production License has a term of twenty-one (21) years, but
may be renewed for further 21 year terms. The are of such a License may not
exceed 260 square kilometers. A Production License confers upon the licensee the
exclusive right to conduct operations for the production of petroleum within the
License area, including all necessary construction and other works.
If Hemley is granted any Petroleum Production Licenses, under the terms of
the Petroleum Act, these will also be subject to a royalty, payable to the
Government, at a rate of 10% of the well-head value of petroleum recovered.
Foreign Investment Considerations. Australia's foreign investment policy
is administered by the Federal Treasurer with the assistance of the Foreign
Investment Review Board ("FIRB"). For the purposes of the policy, Hemley will
constitute a "foreign interest." While the granting of the PELs to Hemley would
not have attracted the operation of the policy, it is likely that Hemley will be
required to obtain the approval of the FIRB under that policy before being
entitled to the grant of one or more Petroleum Production Licenses. Under the
current policy, the level of scrutiny of the proposal will, in broad terms,
depend on the projected level of investment in the development. If the planned
investment is less than A$50 million, the FIRB will normally approve the grant
without examination. If this level is exceeded, the FIRB will examine the
proposal, and will approve the grant of the License unless this is considered by
the Government to be contrary to the national interest.
Native Title Considerations
1. Native Title. In 1992, the High Court of Australia handed down its
decision in the "Mabo case." In that decision, the Court rejected the
traditional doctrine that Australia was terra nullius (land belonging to no one)
at the time of British settlement. It stated that the common law of Australia
recognizes the existence of a form of native title held by Australia's
indigenous inhabitants over their traditional lands where:
(a) a group of indigenous people can establish that it has
maintained a substantial connection with the land, in accordance
with traditional laws and customs of the group, since the time
of British settlement; and
(b) the native title rights have not been lawfully extinguished.
The Court found that the content of native title is dependent upon
the traditions, customs and laws of the particular Aboriginal group. There is no
single, universal native title - rather it will vary from group to group.
Therefore, once a group has established that it has maintained the requisite
connection with the land since British settlement, the court must look to the
traditions, customs and laws of that group to determine the precise content of
native title.
In response to the High Court's decision, the Commonwealth Parliament
enacted the Native Title Act 1993 (the "NTA") in December 1993. The NTA has a
number of objectives:
(a) Protection of native title - to provide for the recognition and
protection of native title.
(b) Validation of past acts - to provide for, or allow, the
validation of Government acts (including the grant of interests
in land) done before the commencement of the NTA on 1 January
1994, which might otherwise be invalid because of the existence
of native title.
(c) Compensation - to provide for compensation to be paid to native
title holders where native title has been extinguished or
impaired as a result of validation of a past act.
(d) Validity of future acts - to establish procedures to be followed
to ensure that Government acts after 1 January 1994 which may
affect native title can proceed without extinguishing or
impairing native title, and are therefore valid. These include
the "right to negotiate" procedure which applies in relation to
the grant, renewal and extension of mining and exploration
titles.
(e) Native title claims - to establish a procedure for native title
claims to be made and determined.
The NTA also established the National Native Title Tribunal ("NNTT")
for the purposes of carrying out specified functions under the NTA.
2. Future Act Regime. In order to ensure that native title rights are
protected in relation to future grants of interests in land, the NTA specifies
that such grants can only be validly made over land in which native title might
exist if certain conditions are satisfied. These conditions include giving
native title holders the same procedural rights as the holders of ordinary
"freehold" title to the land, including the right to be notified.
In addition, the NTA prescribes a special procedure called the "right
to negotiate" procedure (the "RTN procedure") which must be followed to ensure
the validity of certain types of future acts relating to onshore land. These
acts include:
(a) the creation of a right to mine (which is defined to include
exploration and prospecting for petroleum or gas); and
(b) an extension of the period of a right to mine, where the
extension was not part of the original grant of the right to
mine.
Under the RTN procedure, a State Government that is planning to do
the act (for example, the granting of a petroleum exploration license) must give
notice of its intention to do so to various parties, including:
(a) any registered native title holders or claimants (native title
parties) in relation to the land;
(b) any representative Aboriginal body that will be affected by the
proposed act; and
(c) the general public.
Aboriginal groups which wish to oppose or have input in relation to
the proposed future act have two months from the issuance of the notice in which
to notify the NNTT. The Government must then give the native title parties an
opportunity to make submissions in relation to the proposed future act, and must
negotiate in good faith with the native title parties and the grantee with a
view to obtaining the agreement of the native title parties to the doing of the
act. If the parties fail to reach an agreement within a specified period of
time, the NNTT can be requested to make a determination.
3. Conditions Relating to Grant of Petroleum Exploration Licenses 61 and
63. Both PELs were granted after the commencement of the NTA. Accordingly, the
future act regime and the RTN procedure applied to the grant of the Licenses.
Although it is not apparent from the terms of the License documents themselves,
it is assumed that these procedures were followed by the South Australian
Department of Mines and Energy and the Licenses were therefore validly granted
under the NTA.
PEL 63 is a "Swiss cheese" grant, in that the License relates only to
land for which native title is likely to have been extinguished. This land is
described in the License document as including:
(a) land that is now or was formerly the subject of a grant of
freehold title or of a perpetual Government lease; and
(b) land which is or was formerly subject to a pastoral lease
granted by the South Australian Government.
Land over which native title may still exist is intended to be
excluded from the scope of the License.
4. Native Title Claims. As mentioned above, the NTA allows for Aboriginal
groups to register claims for native title with the NNTT. Once a claim is
accepted and registered, the claimants are then entitled to receive notice of
any proposed dealing in the claimed land by the relevant Government. If other
parties, such as the relevant State or Territory Government or underlying
landowners, oppose the claim, the NNTT must direct the parties to try and reach
an agreement about the existence of native title.
On the basis of a search of the Register of Native Title Claims kept
by the NNTT, the only claim which has been registered with the NNTT and which
may affect the PELs is a claim lodged by William Lennon Snr on behalf of the
Antakirinja Muntuntjarra people (Claim No. SC 95/7). This claim would only
affect land within the boundary of PEL 63. The claim was accepted by the
Registrar on August 29, 1996. The Company believes that the substance of this
claim has been resolved by the PEL 63 Access Agreement.
5. Renewal of the PELs and Grant of Petroleum Production Licenses. Under
the current regime, renewal of the PELs or the grant of a Petroleum Production
License to Hemley will constitute a future act to which the RTN procedure
applies. Therefore, prior to renewal or grant, the governmental authority will
be required to notify any registered native title holders or claimants, who will
then have the opportunity to oppose the renewal or grant.
On the assumption that no further native title claims are lodged over
the areas covered by the PELs, it appears that the renewal of PEL 61, or a grant
of a PPL in substitution for it, is unlikely to be opposed by any aboriginal
groups. This is because the area covered by the PEL (or PPL) is part of the
Pitjantjatjara Lands, and so covered by the Pitjantjatjara Act and the Access
Agreement. However, the position is less certain in respect of PEL 63.
6. Legislative Amendments; Recent Developments. The current Federal
Government has proposed extensive amendments to the NTA. These amendments
include the exclusion of certain exploration and mining tenements from the RTN
procedure, provided certain conditions are met. It is expected that substantial
revisions will be made to the amendments before they are passed.
The content of the amendments will also be affected by the
Government's response to the High Court's decision in the recent "Wik case,"
which was handed down on 23 December 1996. In that case, the Court held that
pastoral leases did not necessarily extinguish native title rights. This
decision may have some impact on PEL 63, as it appears to cover substantial
areas of land which are or have been the subject of pastoral leases. The South
Australian Government may also take steps to clarify the status of mineral and
petroleum tenements granted over pastoral lease land, as a result of the High
Court's decision.
No Active Exploration Activities or Wells. The Company has not yet
commenced active exploration and production activities, has drilled no wells and
has no production wells or developed acres.
Company Facilities. The Company currently conducts its business operations
out of facilities located in Sarasota, Florida provided by its officers, at no
cost to the Company. In March 1997, Hemley entered into an operating lease for
office space in Australia. The terms of the lease provide for payments of
approximately $10,500 annually. The lease expired in March of 1999, and has
since continued on the same terms, on a month to month basis. It is anticipated
that at the time of commencement of substantial exploration and development
activities, offices and facilities will be established at the site of such
operations
Item 3. Legal Proceedings.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year covered by this report.
PART II
Item 5. Market for Issuer's Common Equity and Related Stockholder
Matters.
The Company's Common Stock is traded on the NASDAQ bulletin board, under
the symbol MSNO. The Company estimates that at August 31, 1999, there were
approximately 2,368 holders of record of the Company's Common Stock.
The Company has not declared or paid any cash dividends on its Common
Stock during the last two fiscal years, and does not anticipate the declaration
or payment of dividends in the foreseeable future. The Company is not subject to
any restrictions that limit its ability to pay dividends, other than the
unavailability of funds and a statutory restriction found in the Utah Revised
Business Corporation Act, which prohibits the payment of distributions to
sharehodlers if, after giving effect to such distribution:
(a) The Company would not be able to pay its debts as they become
due in the usual course of business; or
(b) The Company's total assets would be less than the sum of its
total liabilities.
The following table sets forth the range of high and low bid information,
as reported by the bulletin board services, for the Company's Common Stock for
each quarter since Mr. Naylor and Mr. Ingram acquired a controlling interest in
the Company and transferred the PELs to the Company, reviving it from its
dormant status. Over-the-counter quotations reflect inter-dealer prices without
retail mark-up, mark-down, or commission and may not represent actual
transactions.
Quarter Ended Common Stock
High Low
March 31, 1997 $2.000 $1.000
June 30, 1997 $1.750 $0.250
September 30, $1.000 $0.500
1997
December 31, 1997 $0.875 $0.375
March 31, 1998 $0.750 $0.250
June 30, 1998 $0.281 $0.063
September 30, $0.156 $0.078
1998
December 31, 1998 $0.188 $0.125
March 31, 1999 $0.297 $0.156
June 30, 1999 $0.266 $0.188
During the last fiscal year, the Company sold no securities that were not
registered under the Securities Act of 1933.
Item 6. Management's Discussion and Analysis or Plan of Operation.
The Company has not had revenues from operations in either of the last two
fiscal years. The Company's plan of operation for the next twelve months is set
forth below.
Given its current cash position and resources, the Company anticipates that it
can satisfy its cash requirements, at current operating levels, through the end
of 1999. In the near term, the Company will continue to pursue financing to
enable it to initiate exploration and production activities. To the extent of
available resources, the Company will also continue to conduct investigations
and evaluations of promising exploration and development opportunities, and to
conduct testing and to gather data with respect to such properties. However, the
Company will defer any exploration or production activities pending receipt of
additional financing.
The recent increases in world oil prices are enhancing the economics of pursuing
the Company's exploration and production projects, so the Company is continuing
to work with Patrindo of Indonesia on the joint venture relating to the Bintuni
Basin Technical Assistance contract. The Company is proceeding with its due
diligence efforts with respect to the project and its joint venture partner. The
Company understands that Pertamina, the Indonesia national oil company, is also
doing an audit of Patrindo assets. Should Pertamina provide its approval with
respect to the transaction, and necessary financing be arranged, negotiations
should be able to move forward quickly. However, the current state of political
and civil unrest in Indonesia has diminished the Company's prospects of
obtaining funding in the near future to proceed with this proposed project.
While the Company continues to seek additional capital to fund development
operations in Indonesia and to otherwise fund future exploration and development
operations, its efforts during the last year to obtain such financing have been
unsuccessful. Furthermore, the Company's limited resources restrict the time it
can dedicate to such efforts. Given the Company's inability to obtain financing
for the pursuit of its proposed exploration and production projects, it is
considering possible alternatives to its current business strategy. The Company
is evaluating potential relationships and acquisition opportunities, both within
the petroleum industry and with non-petroleum related businesses. The Company
hopes by the end of 1999 to either obtain financing to pursue its petroleum
exploration and production objectives, or identify and pursue another business
opportunity, by acquisition or otherwise.
The Company does not anticipate any significant changes in the number of
employees, pending receipt of additional funding or a possible acquisition
transaction.
Year 2000
The Year 2000 ("Y2K") problem is the result of two potential malfunctions that
could have an impact on systems and equipment. The first problem arises due to
computers being programmed to use two rather than four digits to define the
applicable year. The second problem arises in embedded chips, where microchips
and microcontrollers have been designed using two rather than four digits to
define the applicable year. If uncorrected, the problem could result in computer
system and program failures or equipment malfunctions that could result in a
disruption of business operations.
To date, the Company has not completed an internal review of its minimal number
of systems to determine major areas of exposure to Y2K issues. The Company does
not, however, operate a significant number of computer systems and does not rely
on computers to regulate any critical corporate functions. Accordingly, the
Company believes that even without any corrective measures being taken, the
Company will not suffer material adverse effects from the Y2K problems. However,
there can be no assurance that the Company will not experience loss of data and
loss of capacity to continue pursuing its operations if Y2K issues are not
addressed and remedied.
In addition, third parties with whom the Company interacts, need to be surveyed
to assess Y2K compliance, or if contingency plans will become necessary. If such
third party systems are not addressed, any failure of such systems could have an
adverse effect on the Company's development and exploration activities. Inasmuch
as the Company intends to rely heavily on third parties for its exploration
activities, if such third parties' systems fail, it could have a material
adverse effect on the Company.
<PAGE>
Item 7. Financial Statements.
MASON OIL COMPANY, INC.
AND SUBSIDIARY
Consolidated Financial Statements
As of June 30, 1999
<PAGE>
MASON OIL COMPANY, INC. AND SUBSIDIARY
Table of Contents
Page
Independent Auditors' Report..........................................1
Consolidated Financial Statements
Consolidated Balance Sheet........................................2
Consolidated Statements of Operations.............................3
Consolidated Statements of Comprehensive Loss.....................4
Consolidated Statement of Changes in Stockholders' Equity.........5
Consolidated Statements of Cash Flows.............................6
Notes to Consolidated Financial Statements............................8
<PAGE>
MASON OIL COMPANY, INC. AND SUBSIDIARY
See notes to consolidated financial statements.
- 6 -
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Mason Oil Company, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Mason Oil
Company, Inc. and Subsidiary (the "Company") as of June 30, 1999, and the
related consolidated statements of operations, comprehensive loss, changes in
stockholders' equity, and cash flows for each of the years in the two year
period ended June 30, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Mason Oil Company,
Inc. and Subsidiary as of June 30, 1999, and the results of their operations and
their cash flows for each of the years in the two year period ended June 30,
1999, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company's future exploration and development
commitments and recurring net losses raise substantial doubt about its ability
to continue as a going concern. Management's plans regarding those matters are
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
During the year ended June 30, 1999, the Company adopted the provisions
of SFAS No. 130 Reporting Comprehensive Income.
Ehrhardt Keefe Steiner & Hottman PC
September 17, 1999
Denver, Colorado
<PAGE>
MASON OIL COMPANY, INC. AND SUBSIDIARY
Consolidated Balance Sheet
June 30, 1999
Assets
Current Assets
Cash and cash equivalents $ 91,970
Note receivable (Note 3) 110,900
Total current assets 202,870
Property and equipment, at cost
Unproved oil and gas properties, full cost
method 354,211
(Notes 4 and 6)
Property and equipment 174,235
Vehicles 39,882
Other 9,502
--------
577,830
Less accumulated depreciation (21,889)
555,941
Other assets
Deposits 20,421
20,421
Total assets $779,232
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 64,136
Notes payable - related parties (Note 5) 258,824
--------
Total current liabilities 322,960
Deferred salary - stockholder (Note 5) 120,000
--------
Total liabilities 442,960
--------
Commitments and contingencies (Notes 2, 6 and 7)
Stockholders' equity
Common stock, $.001 par value, 200,000,000
shares authorized; 10,890,504 issued and 10,890
outstanding
Additional paid in capital 2,365,801
Retained deficit (2,068,758)
Foreign currency translation adjustment 28,339
--------
336,272
Total liabilities and stockholders' equity $779,232
See notes to consolidated financial statements.
- 2 -
<PAGE>
Consolidated Statements of Operations
For the Years Ended
June 30,
1999 1998
----------- -----------
General and administrative expenses $ 565,915 $ 799,293
Impairment loss on investment in joint venture - 406,649
---------- ----------
(Note 7)
Loss from operations 565,915 1,205,942
Other (expense) income
Interest income 23,358 45,782
Interest expense (27,463) (28,024)
---------- ----------
(4,105) 17,758
Net loss $ (570,020) $(1,188,184)
========== ===========
Basic loss per common share $ (.05) (.10)
========== ==========
Weighted average common shares outstanding 11,142,449 11,398,815
========== ==========
<PAGE>
Consolidated Statements of Comprehensive Loss
For the Years Ended
June 30,
1999 1998
----------- -----------
Net loss $ (570,020) $(1,188,184)
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment 14,736 15,181
---------- ----------
Total other comprehensive income (loss) 14,736 15,181
---------- ----------
Comprehensive loss $ (555,284) $(1,173,003)
========== ===========
<PAGE>
See notes to consolidated financial statements.
- 4 -
Consolidated Statement of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Foreign
Additional Currency
Common Stock Paid in Accumulate Transaction
Shares Amount Capital Deficit Adjustment Total
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1997 10,890,504 $10,890 $1,881,801 $(310,554) $(1,578) $1,580,559
Stock issued for investment in joint 806,667 807 604,193 - - 605,000
venture
Net loss - - - (1,188,184) - (1,188,184)
Foreign currency translation adjustment - - - - 15,181 15,181
------- ------- -------- ------- ------- -------
Balance at June 30, 1998 11,697,171 11,697 2,485,994 (1,498,738) 13,603 1,012,556
Sale of joint venture interest (Note 7) (806,667) (807) (120,193) - - (121,000)
Net loss - - - (570,020) - (570,020)
Foreign currency translation adjustment - - - - 14,736 14,736
------- ------ -------- ------- ------- -------
Balance at June 30, 1999 10,890,504 $10,890 $2,365,801 $(2,068,758) $28,339 336,272
=========== ====== ========== ========= ======== ========
</TABLE>
<PAGE>
See notes to consolidated financial statements.
- 1 -
Consolidated Statements of Cash Flows
For the Years Ended
June 30,
---------------------------
Cash used in operating activities
Net loss $ (570,020) $(1,188,184)
---------- -----------
Changes to reconcile net loss to net cash
used in operating activities
Impairment loss on disposal of joint venture - 406,649
interest
Depreciation and amortization 8,547 10,000
Changes in assets and liabilities
Prepaid expenses and other - 1,478
Deposits 650 (5,190)
Organizational costs - 1,049
Accounts payable and accrued expenses 73,283 62,598
---------- ----------
82,480 476,584
Net cash used in operating activities (472,804) (711,600)
---------- ----------
Cash used in investing activities
Purchase of interest in joint venture interest - (300,000)
Payments received on note receivable 192,948 -
Oil and gas exploration expenditures (56,044) (107,816)
Purchase of vehicles and equipment (45,561) (7,012)
---------- ----------
Net cash provided by (used in) investing 91,344 (414,828)
---------- ----------
activities
Cash provided from financing activities
Notes payable 54,461 50,872
Payments on notes payable (25,619) (14,076)
---------- ----------
Net cash provided by financing activities 28,842 36,796
---------- ----------
Effect of exchange rates on cash (29,064) (24,343)
---------- ----------
Net decrease in cash and cash equivalents (381,682) (1,113,975)
Cash and cash equivalents - beginning of period 473,652 1,587,627
---------- ----------
Cash and cash equivalents - end of period $ 91,970 $ 473,652
========== ==========
Continued on the following page.
<PAGE>
Consolidated Statements of Cash Flows
Continued from the previous page.
Supplemental disclosure of non-cash financing and investing activities:
The Company paid approximately $33,000 and $0 in interest expense for June
30, 1999 and 1998, respectively.
During the year ended June 30, 1998, the Company issued 806,667 shares of
stock valued at $650,000 and paid $300,000 cash to purchase a joint
venture interest in a drilling rig. During 1999, the Company sold back the
drilling rig to the original owner resulting in a note receivable of
$300,000, the transfer of title to the Company for the portable drilling
rig camp valued at $121,626 and the return of 806,667 shares of common
stock valued at $121,000.
During fiscal year 1998, the Company financed $9,554, to purchase
vehicles.
<PAGE>
15
<PAGE>
Note 1 - Organization and Summary of Significant Accounting Policies
Nature of Business and Organization
Mason Oil Company, Inc. and Subsidiary (the Company) was incorporated in Utah
and conducts principally oil and gas acquisition, exploration, and development
activities in Southeast Asia and South Australia through a wholly owned
Australian subsidiary, Hemley Exploration Pty.
Ltd.
In October 1996, Mason Oil Company, Inc. (Mason Oil) acquired all of the issued
and outstanding common shares of IAN Holdings Limited and Subsidiaries (IAN) in
exchange for 6,000,000 shares of common stock of Mason Oil. For financial
reporting purposes, the business combination was accounted for as an additional
capitalization of the Company (a reverse acquisition with IAN as the acquirer).
IAN is considered the surviving entity. The historical financial statements
prior to the merger are those of IAN. Mason Oil's only assets consisted of cash
and a liability with a net book value of $159. Mason Oil and IAN subsequently
merged with Mason Oil (the Company) as the legal survivor and continues to be
governed under such Articles of Incorporation and bylaws in effect immediately
prior to consummation of the merger.
Principles of Consolidation
The consolidated financial statements include the accounts of Mason Oil, Inc.
and its wholly owned subsidiary. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Risks and Uncertainties
Currently the Company has not identified any proven reserves, and therefore, is
not involved in any oil & gas production activities. There can be no assurance
that in the future the Company will locate proved reserves associated with its
leasehold interests. In the event proved reserves are identified the feasibility
of recovery is strongly dependent upon world market prices for oil & gas, and
accordingly there can be no guarantee that amounts capitalized as acquisition,
exploration, and development costs will be recoverable through future
operations.
The Company's principal operations are conducted in South Australia where the
Australian dollar is the functional currency. Future operations of the Company
could be adversely affected by unfavorable foreign currency fluctuations.
<PAGE>
Note 1 - Organization and Summary of Significant Accounting Policies
(continued)
Foreign Currency Translation
All assets and liabilities of the Company's subsidiary are translated into U.S.
dollars using the prevailing exchange rates as of the balance sheet date. Income
and expenses are translated using the weighted average exchange rates for the
period. Stockholders' investments are translated at the historical exchange
rates prevailing at the time of such investments. Any gains or losses from
foreign currency translation are included as a separate component of
stockholders' equity. The prevailing exchange rate at June 30, 1999 was
approximately 1 U.S. dollar to 1.51 Australian dollars.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
Deposits
Deposits at June 30, 1999 consist of security bonds on deposit with the
Australian Department of Mines and Energy (MESA) as required by the associated
license agreements.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed on the
straight-line method over the estimated useful lives of the assets which range
from five to seven years.
Oil and Gas Properties
The Company follows the full cost method of accounting for oil and gas
properties. Accordingly, all costs associated with acquisition, exploration, and
development of oil and gas reserves, including directly related overhead costs,
are capitalized. Amounts capitalized by the Company as exploration costs
currently consist of geological and geophysical (G&G) costs in addition to
leasehold maintenance costs and other related costs of maintaining the Company's
leasehold interests.
<PAGE>
Note 1 - Organization and Summary of Significant Accounting Policies
(continued)
Oil and Gas Properties (continued)
Investments in unproved properties are not amortized until proved reserves
associated with the projects can be determined or until impairment occurs. If
the results of an assessment indicate that the properties are impaired, the
amount of the impairment is included in capitalized costs to be amortized.
Management of the Company assesses costs excluded from the full cost pool
periodically for impairment.
Income Taxes
The Company is subject to U.S. Federal income taxes and is subject to foreign
taxes in Australia for earnings of its Australian subsidiary. No income taxes
are currently due. The Company recognizes deferred tax assets and liabilities
for future tax consequences attributable to differences between financial
statement carry 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 and settled. At June 30, 1999, the
Company has foreign net operating loss carryforwards of approximately $701,000,
which can be used to offset future Australian income taxes payable. The Company
also has federal income tax net operating loss carryforwards of approximately
$565,000 which expire in 2014. The net operating loss carryforwards have been
fully reserved for by a valuation allowance.
Fair Value of Financial Instruments
The carrying amounts for cash, accounts payable and accrued expenses
approximated their fair values as of June 30, 1999 due to the relatively short
maturities of these instruments.
The carrying amounts of Notes Payable outstanding also approximate their fair
values as of June 30, 1999 because interest rates on these instruments
approximate the interest rate on debt with similar terms to the Company.
The Company cannot reasonably estimate the fair value of deferred salary -
stockholder due to uncertainties surrounding the repayment which is based on
achieving certain revenue levels or capital being raised.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles 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 consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
<PAGE>
Note 1 - Organization and Summary of Significant Accounting Policies
(continued)
Basic Loss Per Common Share
The Company follows the provisions of Statement of Financial Accounting Standard
No. 128, "Earnings Per Share" (SFAS 128). SFAS 128 established new definitions
for calculating and disclosing basic and diluted earnings per share. Basic loss
per share is based upon the weighted average number of shares outstanding. All
dilutive potential common shares have an antidilutive effect on diluted net loss
per share and therefore have been excluded in determining net loss per share.
The Company's basic and diluted loss per share are equivalent and accordingly
only basic loss per share has been presented.
Note 2 - Going Concern
The Company's commitments for future exploration and development activities
required under its Petroleum Exploration Leases coupled with the recurring net
losses from inception to June 30, 1999 raise substantial doubt about the
entity's ability to continue as a going concern. Management's plans to fund such
commitments include raising additional capital through a private equity
investment and the public markets. Management believes that the Company will be
able to raise adequate capital to fund such future exploration and development
operations.
Note 3 - Note Receivable
The Company received a $300,000 note receivable associated with the sale of its
joint venture interest in a drilling rig (Note 7). The note has an outstanding
balance including accrued interest at June 30, 1999 of $110,900 and provides for
remaining payments of $50,000 on September 30, 1999 and January 1, 2000. The
note also bears interest at 8% and is secured by the drilling rig.
Note 4 - Unproved Oil and Gas Properties
The Company maintains two petroleum exploration leases (PEL's) with 5 years
terms expiring May 22, 2001. The Company may renew the leases for additional 5
year terms subject to the terms contained in the PEL's (Note 6).
<PAGE>
Note 4 - Unproved Oil and Gas Properties (continued)
The Company is currently participating in oil and gas exploration activities on
approximately 4,200,000 acres in the state of South Australia, which is known as
the Eastern Officer Basin situated approximately 200 miles south of Alice
Springs and 700 miles north of Adelaide. Such acreage comprises the Company's
only cost center.
Costs excluded from amortization consist of the following at June 30, 1999:
Period Acquisition Exploration
Incurred Costs Costs Total
Period ended June 30, 1996 $ 27,339 $ 147,539 $ 174,878
Year ended June 30, 1997 - 18,015 18,015
Year ended June 30, 1998 - 115,057 115,057
Year ended June 30, 1999 - 59,275 59,275
Effect of exchange rates (1,733) (11,281) (13,014)
---------- ---------- ----------
Inception to June 30, 1999 $ 25,606 $ 328,605 $ 354,211
========== ========== ==========
Note 5 - Notes Payable
Notes payable consists of the following at June 30, 1999:
Note payable (unsecured) - stockholder, interest at 8%, due $175,611
on demand.
Note payable (unsecured) - stockholder, interest at 8%, due 83,213
--------
on demand.
Total related party notes payable $258,824
<PAGE>
Note 6 - Commitments and Contingencies
Petroleum Exploration Licenses (PEL's)
The Company has two Petroleum Exploration Licenses (PEL's) with the state of
South Australia which contain certain commitments related to exploratory
operations to be incurred over the five year term of each lease. During the
fiscal year 1999, the South Australian Department of Mines and Energy modified
the requirements associated with the Company's PEL's and has revised the
exploration commitment schedule including drilling activities. The licenses
contain revised estimates of the future costs to complete such exploratory
operation requirements, stated in Australian dollars (A $) which are also
presented in United States dollars (U.S. $) using the June 30, 1999 exchange
rate as follows:
A $ U.S. $
----------------------------
Year ending May 22, 2000 6,000,000 3,974,000
Year ending May 22, 2001 4,950,000 3,278,000
---------- ----------
Total estimated exploratory $10,950,000 $7,252,000
costs
In addition to the PEL's, the Company entered into Access Agreements with Anangu
Pitjanjatjara (AP) on March 5, 1996 and with the Yankunytjatjara Council (YC) on
May 1, 1998. Pursuant to such agreements, the Company has agreed that annual
rental payments be made to AP and YC for each of the parcels covered by the
PEL's. While both Access Agreements stipulate a minimum payment of $13,245, the
rental payments for AP and YC are calculated based upon the amount of Annual
Exploration Expenditures (AEE's) incurred as follows:
2.5% and 2.55%, respectively of AEE's less than or equal to $331,100 1.5%
of AEE's in excess of $331,100
The conversion rate used for these financial statement disclosures are as of
June 30, 1999 and reflect an exchange rate of approximately 1 U.S. dollar to
1.51 Australian dollar.
Under the terms of the Access Agreements, any application for a Petroleum
Production License (PPL) by the Company would entitle the respective parties to
obtain a participatory interest in any exploration and production joint venture
agreement (JVA). If either party so elects, the maximum participating interest
is 10% and in no event can the participatory interest be less than 1%.
<PAGE>
Note 6 - Commitments and Contingencies (continued)
Petroleum Exploration Licenses (PEL's) (continued)
The access agreements provide for the reimbursement of surveying services
provided by AP and YC and for certain overriding royalty payments to be made for
all petroleum recovered under any PEL's or any PPL granted by the South
Australian Department of Mines and Energy. In addition, certain stockholders' of
the Company have been personally granted a 3% overriding royalty interest in any
PPL's granted to the Company's subsidiary Hemley Exploration Pty. Ltd.
Stock Options
The Company had the following stock option activity for the years ended June 30,
1998 and 1999:
Exercise
Number Price Expiration
Balance at June 30, 1997 - $ - -
Stock options issued 3,500,000 1.00 November 14, 2002
Stock options cancelled (1,500,000) 1.00 November 14, 2002
---------- ---------
(1)
Balance at June 30, 1998 2,000,000 1.00 November 14, 2002
Stock options cancelled (2,000,000) - November 14, 2002
---------- --------
(1)
Balance at June 30, 1999 - $ - -
======== ========
(1) Options were issued to outside consultants and directors for future
services to be performed. Such services were not performed and the related
options were cancelled.
Consulting Agreement - Related Party
The Company has entered into a consulting agreement with a company owned by one
of the Company's directors and shareholders. The agreement calls for engineering
services to be provided to the Company's subsidiary at a rate of approximately
$75,000 annually. The Company paid approximately $62,000 and $65,000 in
consulting expense to this related entity for the years ended June 30, 1999 and
1998, respectively.
<PAGE>
Note 6 - Commitments and Contingencies (continued)
Deferred Salary - Stockholder
The Company has an employment agreement with its president, who is also a
stockholder, which provides for an annual salary of $48,000 for his services.
The Company has accrued the annual salary and intends to pay such accrued
salaries in the future out of available cash flow once the Company reaches
certain revenue levels or raises future equity capital. The cumulative accrued
unpaid salary at June 30, 1999 is $120,000.
Note 7 - Investment in Joint Venture
As a result of declining world oil prices mobilization and use of the drilling
rig became unfeasible, and the Company entered into an agreement in October 1998
to sell their interest in the drilling rig joint venture back to the other 50%
owner. The subsequent sale of the Company's investment in the drilling rig joint
venture caused the Company to record an impairment of $406,649 for the year
ended June 30, 1998, reflecting the net realizable value of the investment. The
Company's sale of its investment in a drilling rig joint venture has been
recorded at its estimated net realizable value, which consisted of a $300,000
note receivable, the transfer of title to the Company for a portable rig camp
valued at $121,626, and the return of 806,667 shares of Company's common stock
originally used to purchase the joint venture interest valued at $121,000.
<PAGE>
Item 8. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure.
As previously reported by the Company, effective as of September 22, 1997, the
firm of Mantyla, McReynolds & Associates ("Mantyla") was dismissed as the
Company's principal independent accountant, and the accounting firm of Ehrhardt
Keefe Steiner & Hottman PC was engaged by the Company to serve as the principal
accountants to audit the Company's financial statements.
The reports of Mantyla on the Company's financial statements for the two
fiscal years ended December 31, 1995 and December 31, 1994 did not contain an
adverse opinion or disclaimer of opinion and were not qualified or modified as
to uncertainty, audit, scope, or accounting principles. The decision to change
accountants was approved by the Company's Board of Directors. There were no
disagreements with Mantyla, whether or not resolved, on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which, if not resolved to Mantyla's satisfaction, would have caused
Mantyla to make reference to the subject matter of the disagreement in
connection with its report.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
The Company's directors and executive officers are as follows:
Paul B. Ingram, Age 67
President and Principal Executive Officer
Mr. Ingram has served as the President and a director of the Company
since September 13, 1996. Mr. Ingram was active as an independent oil
and gas producer until 1995.
John L. Naylor, Age 58
Secretary-Treasurer and Principal Accounting and Financial Officer Mr. Naylor
has served as the Secretary and Treasurer of the Company, and as a member of its
Board of Directors, since September 13, 1996. Mr. Naylor has been active in the
oil and gas business for the past 30 years both from a technical and a business
standpoint in Australia, Southeast Asia and the U.S.
John K. Price, Age 56
Mr. Price has served as a director of the Company since December 1996.
Mr. Price is a college professor at North West Louisiana University.
Mr. Price holds a Ph.D. degree in Political Science.
Geoffrey J. Pickles, Age 60
Mr. Pickles has served as a director of the Company since June 1, 1997.
He is a stock broker in the energy field in Sydney, NSW, Australia,
with the firm of Dicksons Limited. Mr. Pickles has had many years of
experience in the exploration and development of natural resources.
All directors serve until the next annual meeting of shareholders, and until
their successors are duly elected and qualified. None of the current directors
of the Company serves as a director of any other reporting company.
The Company has no employees other than its executive officers.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file certain reports
regarding ownership of and transactions in the Company's equity securities with
the Securities and Exchange Commission. Such officers, directors and ten-percent
shareholders are also required by SEC rules to furnish the Company with copies
of all Section 16(a) forms that they file.
Based solely upon its review of copies of such forms or "no filings required
letters" received by it, the Company believes that during the fiscal year ended
June 30, 1997, all reports were filed on a timely basis.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
The Company's directors and executive officers are as follows:
Paul B. Ingram, Age 68
President and Principal Executive Officer
Mr. Ingram has served as the President and a director of the Company
since September 13, 1996. Mr. Ingram was active as an independent oil
and gas producer until 1995.
John L. Naylor, Age 59
Secretary-Treasurer and Principal Accounting and Financial Officer Mr. Naylor
has served as the Secretary and Treasurer of the Company, and as a member of its
Board of Directors, since September 13, 1996. Mr. Naylor has been active in the
oil and gas business for the past 30 years both from a technical and a business
standpoint in Australia, Southeast Asia and the U.S.
John K. Price, Age 57
Mr. Price has served as a director of the Company since December 1996.
Mr. Price is a college professor at North West Louisiana University.
Mr. Price holds a Ph.D. degree in Political Science.
Geoffrey J. Pickles, Age 61
Mr. Pickles has served as a director of the Company since June 1, 1997.
He is a stock broker in the energy field in Sydney, NSW, Australia,
with the firm of Dicksons Limited. Mr. Pickles has had many years of
experience in the exploration and development of natural resources.
All directors serve until the next annual meeting of shareholders, and until
their successors are duly elected and qualified. None of the current directors
of the Company serves as a director of any other reporting company.
The Company has no employees other than its executive officers.
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file certain reports
regarding ownership of and transactions in the Company's equity securities with
the Securities and Exchange Commission. Such officers, directors and ten-percent
shareholders are also required by SEC rules to furnish the Company with copies
of all Section 16(a) forms that they file.
Based solely upon its review of copies of such forms or "no filings
required letters" received by it, the Company believes that during the fiscal
year ended June 30, 1999, all reports were filed on a timely basis.
Item 10. Executive Compensation.
Set forth below is a Summary Compensation Table, showing the various
elements of compensation earned during the last completed fiscal year and during
the previous two years. No executive officer was compensated in the amount of
$100,000 or more during any of the last three years.
- --------------------------------------------------------------=========
Annual Compensation LONG-TERM COMPENSATION
- --------------------------------------------------------------=========
- --------------------------------------------------------------=========
Awards Payouts
- --------------------------------------------------------------=========
- --------------------------------------------------------------=========
Name Other Securities
and Annual RestricteUnderlying All
PrincipalFiscal Compen- Stock Options/ LTIP Other
Position Year Salary Bonus sation Award(s) SARs PayoutsCompensa-
tion
- --------------------------------------------------------------=========
- --------------------------------------------------------------=========
CEO 1999 $48,000*0 0 0 0 0 0
Paul B. 1998 $48,000*0 0 0 0 0 0
Ingram 1997 $24,000*0 0 0 0 0 0
- --------------------------------------------------------------=========
*Compensation has been earned and accrued at the rates indicated, but payments
have been deferred since January 1, 1997, due to the Company's insufficient cash
flow.
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
The table below sets forth as of the Record Date (i) the name and address of
each person known by management to own beneficially more than five percent (5%)
of the Company's outstanding Common Stock, the number of shares beneficially
owned by each such shareholder and the percentage of outstanding shares owned
and (ii) the number and percentage of outstanding shares of Common Stock
beneficially owned by each of the Company's directors and each of the five
highest paid executive officers of the Company, individually (excluding
executive officers whose annual compensation is less than $100,000) and by all
directors and executive officers of the Company as a group. Unless otherwise
noted, the persons named below have sole voting and investment power with
respect to such shares.
Percent
Beneficial Owners Number of Beneficially
Shares Owned
Paul B. Ingram (Director and 3,700,000 33.97%
Officer)
6337 Ravenwood Drive
Sarasota, FL 34243
John L. Naylor (Director and 3,700,000 33.97%
Officer)
6337 Ravenwood Drive
Sarasota, FL 34243
Geoffrey J. Pickles (Director) 0 0%
Kardinea Road
Cliffton Gardens
2088 NSW, Australia
John K. Price (Director) 0 0%
104 Wynnwood
Ruston, Louisiana 71270
All Executive Officers and
Directors as a group (4 7,400,000 67.94%
persons) - Total
Item 12. Certain Relationships and Related Transactions.
Except as otherwise set forth below, to the knowledge of management, during the
past two years, the Company was not involved in any transaction and is not
currently involved in any proposed transaction, in which the Company or any of
its subsidiaries was or is to be a party, in which any of its directors,
officers, nominees for election as directors, security holders or immediate
family member of any of the parties mentioned above, have a direct or indirect
material interest, other than transactions involving employment or consulting
relationships or other transactions where the amount involved did not exceed
$60,000 per year. The Company has entered into a consulting arrangement for
engineering services with an entity owned by John Naylor, a director of the
Company. The Company paid approximately $62,000 and $65,000 during the fiscal
years ended June 30, 1999 and 1998 under such consulting arrangement.
Additionally, Hemley Exploration Pty. Ltd., a wholly owned subsidiary of the
Company, paid for John L. Naylor's rent and living expenses for approximately
one month when he moved from the Philippines to Australia during the last fiscal
year.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits
*Exhibit Articles of Incorporation of the
3.1 Registrant. (Filed as Exhibit 3.1 to
the Registrant's Form 10-SB-A1, Reg.
No. 0-28184 filed May 31, 1996).
*Exhibit Articles of Amendment to Articles of
3.2 Incorporation. (Filed as Exhibit 3.2
to the Registrant's Form 10-SB-A1,
Reg. No. 0-28184 filed May 31, 1996).
*Exhibit Bylaws of the Registrant. (Filed as
3.3 Exhibit 3.3 to the Registrant's Form
10-SB-A1, Reg. No. 0-28184 filed May
31, 1996).
*Exhibit Amended Bylaws of the Registrant.
3.4 (Filed as Exhibit 3.4 to the
Registrant's Form 10-SB-A1, Reg. No.
0-28184 filed May 31, 1996).
*Exhibit Stock Purchase Agreement, dated
10 September 10, 1996, by and between
Craig Carpenter, Mason Oil Company,
Inc., Paul B. Ingram and John L.
Naylor. (Filed as Exhibit 2.1 to the
Registrant's Form 10-QSB Reg. No.
000-28184 filed November 15, 1996).
*Exhibit Stock Purchase and Sale Agreement,
10.1 dated October 14, 1996, between
Registrant, Paul B. Ingram and John L.
Naylor. (Filed as Exhibit 2.2 to the
Registrant's Form 10-QSB Reg. No.
000-28184 filed November 15, 1996).
*Exhibit Access Agreement between Anangu
10.2 Pitjantjatjara and John Leonard Naylor
and Paul Bryan Ingram. (Filed as
Exhibit 2.5 to the Registrant's Form
10-QSB, Reg. No. 000-28184 filed
February 21, 1997).
*Exhibit Petroleum Exploration License (PEL)
10.3 No. 61 and PEL Agreement. (Filed as
Exhibit 2.3 to the Registrant's Form
10-QSB Reg. No. 000-28184 filed
February 21, 1997).
*Exhibit Petroleum Exploration License No. 63
10.4 and PEL Agreement. (Filed as Exhibit
2.4 to the Registrant's Form 10-QSB
Reg. No. 000-28184 filed February 21,
1997).
*Exhibit Joint Venture Agreement between Hemley
10.5 Exploration PTY. LTD., an Australian
corporation and PT. PUTRA BAKTI MAHKOTA, an
Indonesian corporation. (Filed as Exhibit 10.5 to the
Registrant's Form 10-KSB for the fiscal year ended
June 30, 1997).
*Exhibit Subscription Agreement and Investment
10.6 Representation, dated February 28,
1997. (Filed as Exhibit 10.1 to the
Registrant's Form 10-QSB Reg. No.
000-28184 filed May 20, 1997).
*Exhibit Consulting Fee Agreement dated
10.7 February 28, 1997. (Filed as a plan
to the Registrant's Registration
Statement in Form S-8 Reg. No.
333-24467 filed April 3, 1997).
*Exhibit Amendment No. 1 to Consulting Fee
10.8 Agreement dated May 8, 1997, amending
the Consulting Fee Agreement dated
February 28, 1997, and previously
filed with the Securities and Exchange
Commission on a Form S-8 Registration
Statement dated March 25, 1997.
(Filed as Exhibit 10.2 to the
Registrant's Form 10-QSB Reg. No.
000-28184 filed May 20, 1997).
*Exhibit Access Agreement dated May 1, 1998
10.9 among Yan Kun ytjatjara Council,
Antakirinja Land Management, Paddy
Jones, Jean Woods, Tilly Waye, Sadie
Singer, Lallie Dennon, Johnny
Cullinan, William Herbert Lennon Snr.,
Eileen Crombie, Ian Crombie, Keith
Smith and Henley
*Exhibit Drilling Rig Sales Agreement
10.10
*Exhibit Memorandum of Agreement between PT.
10.11 Patrindo Persadamadjn and Hemley
Exploration Pty. Ltd., dated August
24, 1998.
*Exhibit Letter on Change in Certifying
16 Accountant. (Filed as Exhibit 16 to
the Registrant's Form 8K Reg. No.
0-28184 filed September 29, 1997).
Exhibit Subsidiaries of the Registrant.
21
Exhibit Power of Attorney (included on page 17
24 herewith).
Exhibit Financial Data Schedule.
27
*Exhibits incorporated herein by reference.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities and Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
September 27, 1999
MASON OIL COMPANY, INC.
By:
Paul B. Ingram, President
(Principal
Executive Officer) and Director
POWER OF ATTORNEY
KNOW ALL PERSONS by these presents that each person whose signature to
this Annual Report appears below hereby constitutes and appoints Paul B. Ingram
and John L. Naylor, and each of them as his true and lawful attorney-in-fact and
agent, with full power of substitution, to sign on his behalf individually and
in the capacity stated below and to perform any acts necessary to be done in
order to file all amendments and post-effective amendments to this Annual
Report, and any and all instruments or documents filed as part of or in
connection with this Annual Report or the amendments thereto and each of the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or his substitutes, shall do or cause to be done by virtue hereof.
In accordance with the requirements of Section 13, or 15(d) of the
Securities and Exchange Act of 1934, the Registrant has duly caused this report
to be signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
September 27, 1999
Paul B. Ingram, President (Principal
Executive Officer) and Director
September 27, 1999
John L. Naylor, Secretary-Treasurer
(Principal Accounting and Financial
Officer) and Director
September 27, 1999
John Price, Director
September 27, 1999
Geoffrey J. Pickles, Director
<PAGE>
Exhibit 21
Subsidiaries of the Registrant
The Registrant's only subsidiary is Hemley Exploration Pty.
Ltd., an Australian corporation.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
Exhibit 27
Financial Data Schedule
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 91,970
<SECURITIES> 0
<RECEIVABLES> 110,900
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 202,870
<PP&E> 577,830
<DEPRECIATION> 21,899
<TOTAL-ASSETS> 779,232
<CURRENT-LIABILITIES> 322,960
<BONDS> 0
0
0
<COMMON> 10,890
<OTHER-SE> 325,382
<TOTAL-LIABILITY-AND-EQUITY> 779,232
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 565,915
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,463
<INCOME-PRETAX> (570,020)
<INCOME-TAX> 0
<INCOME-CONTINUING> (570,020)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (570,020)
<EPS-BASIC> (.05)
<EPS-DILUTED> (.05)
</TABLE>
