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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended June 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ___________ to ___________
Commission file number: 0-24971
MGPX VENTURES, INC.
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(Name of small business issuer in its charter)
Nevada 95-4067606
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
17337 Ventura Boulevard, Suite 224, Encino, California 91316
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(Address of principal executive offices) (Zip Code)
(818) 981-7074
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(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act:
Title of each class registered: None
Name of each exchange on which registered: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.04
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(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 no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is 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. [ ]
The issuer had no revenues from operations during the fiscal year ended
June 30, 1999.
Based on the average of the closing bid and asked prices of the issuer's
common stock on June 30, 1999, the aggregate market value of the common stock
held by non-affiliates on that date was $451,017.
As of August 3, 1999, the issuer had 1,509,865 shares of common stock
outstanding.
Documents incorporated by reference: None
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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CONTENTS
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PART I
Item 1. Description of Business............................................ 3
Item 2. Description of Property............................................ 6
Item 3. Legal Proceedings.................................................. 6
Item 4. Submission of Matters to a Vote of Security Holders ............... 6
PART II
Item 5. Market for Common Equity and Related Stockholder Matters........... 8
Item 6. Management's Discussion and Analysis or Plan of Operation.......... 9
Item 7. Financial Statements............................................... 16
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................... 29
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act................. 30
Item 10. Executive Compensation............................................. 32
Item 11. Security Ownership of Certain Beneficial Owners and Management..... 34
Item 12. Certain Relationships and Related Transactions..................... 35
Item 13. Exhibits and Reports on Form 8-K................................... 36
SIGNATURES ................................................................... 38
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FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements. The forward-looking
statements include all statements that are not statements of historical fact.
The forward-looking statements are often identifiable by their use of words such
as "may," "expect," "believe," "anticipate," "intend," "could," "estimate," or
"continue," or the negative or other variations of those or comparable terms.
Our actual results could differ materially from the anticipated results
described in the forward-looking statements. Factors that could affect our
results include, but are not limited to, the risk factors listed in Item 6,
"Management's Discussion and Analysis or Plan of Operation - Risk Factors," and
included elsewhere in this report.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
PRIOR OPERATIONS AS WARNER TECHNOLOGIES, INC.
MGPX Ventures, Inc. ("MGPX") was incorporated under the laws of the State
of Nevada on August 7, 1986 under the name of Maple Enterprises, Inc. ("Maple").
On July 8, 1988, Maple acquired approximately 99% of the outstanding shares of
Warner Technologies, Inc. ("Warner"), a privately held California corporation,
in exchange for shares of common stock and stock options. On September 16, 1988,
Warner merged into Maple, and the name of the surviving company was changed to
Warner Technologies, Inc.
While doing business under the name of Warner Technologies, Inc., we
provided energy efficiency products and services in three principal areas: (1)
lighting retrofits, (2) electrical control systems for buildings, and (3)
strategic energy planning services. These products and services were delivered
to commercial, industrial, institutional and government buildings through
contracts with building owners and managers, as well as directly to utilities
for their customers' benefit. However, as a result of deregulation and other
significant changes in the industry, we did not have sufficient capital
resources to compete effectively within the electricity industry.
SALE OF ASSETS
On February 16, 1998, we entered into an agreement to sell our operating
business and substantially all of our net operating assets, effective as of
December 31, 1997, to Thomas S. Hathaway and Joseph A. Ferrari, who were then
serving as our president and executive vice president, respectively. See Note 3
to the financial statements on page 31 for a description of the net operating
assets. The cash purchase price of $650,000 was established through negotiations
between the outside members of our board of directors and Messrs. Hathaway and
Ferrari and was supported by: (i) a September 24, 1997 independent valuation by
Singer Lewak Greenbaum & Goldstein LLP of the company's net assets, using the
capitalization of excess earnings - return on assets method of valuation, which
established an estimated fair market value of $475,000; and (ii) a February 14,
1998 fairness opinion from The Mentor Group, Inc. ("TMG") to our board of
directors to the effect that, in the opinion of TMG, the terms of the sale of
assets were fair to our stockholders from a financial point of view. On March
10, 1998, at our annual stockholders meeting, approximately 87% of our
outstanding voting equity (and approximately 82% of the outstanding voting
equity held by persons other than Messrs. Hathaway and Ferrari) voted, in person
or by proxy, to approve the sale of assets. Stockholders also voted to change
the name of the company from Warner Technologies, Inc. to MGPX Ventures, Inc. To
our best knowledge, there is no relationship between Messrs. Hathaway and
Ferrari and any other stockholders of MGPX. The sale of assets was completed on
March 31, 1998. We received net proceeds of $585,000 from the sale after closing
costs.
Pursuant to the asset sale agreement, we also purchased from Messrs.
Hathaway and Ferrari for $1,000 all of the shares of common stock owned by them
(183,481 shares from Mr. Hathaway and 159,396 shares from Mr. Ferrari). In
addition, under the agreement, all of their options and option rights were
canceled.
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OPERATIONS AS A SHELL CORPORATION
As a result of the sale of assets, we became a "shell" corporation with no
operations or business plan other than to seek to identify and complete an
acquisition, merger or other transaction that would enhance stockholder value.
The board of directors retained Buddy Young as a consultant, appointing him to
serve part time as our president and chief executive officer and instructing him
to:
- register our class of common stock under the Securities Exchange
Act of 1934 in order to improve our prospects for completing a
transaction by being a reporting company; and
- conduct a search for potential merger and acquisition candidates
and other business opportunities.
On October 16, 1998, we filed a registration statement on Form 10-SB to
register our common stock under the Exchange Act, and the registration statement
became effective on December 15, 1998.
CHANGE OF MANAGEMENT AND ADOPTION OF NEW BUSINESS PLAN
After reviewing numerous potential merger and acquisition candidates and
business opportunities and consulting with our chairman of the board, Mr. Young
presented three possible alternatives for consideration at a meeting of the
board of directors on July 26, 1999. The board weighed the potential advantages
and disadvantages of each alternative and unanimously approved a transaction
whereby MGPX hired new management and adopted a plan for MGPX to enter the oil
and gas resources business.
Accordingly, on that date the board accepted the resignations of Isaac Moss
as a director and of Buddy Young as the president and chief executive officer
and a director of MGPX. Mr. Young agreed to continue to act as a consultant to
MGPX until the earlier of our next stockholders meeting or October 31, 1999. The
board appointed Kenneth R. Peak as our new president and chief executive officer
and a director of the company, with the proviso that his continued service as an
officer after August 26, 1999 would be contingent upon his ability to complete
the following tasks:
- Pay all accrued dividends owed on our Series B preferred stock;
- Solicit approval from holders of a majority of the outstanding
shares of Series B preferred stock to the automatic conversion of
each outstanding share of Series B preferred stock on August 16,
1999 at an adjusted rate of 30 shares of common stock for each
share of Series B preferred stock; and
- Raise at least $600,000 of new equity financing through a private
placement of common stock.
The first and second tasks have already been completed, and we currently
anticipate completing the third task on or before August 26, 1999, although no
assurances can be given. The board believes that each of these tasks must be
completed before we can effectively implement our new business plan to
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enter the oil and gas resources business. We require additional capital to
fund our new business, which we intend to seek through a private placement of
common stock. However, investors are not likely to invest new capital unless
our capitalization is first restructured to eliminate the outstanding shares
of Series B preferred stock. Therefore, to induce the holders of Series B
preferred stock to agree to a conversion of their shares to common stock, the
board determined that it was necessary first to pay all accrued dividends
owed on the Series B preferred stock and then to offer holders an increase in
the conversion rate from 12 to 30 shares of common stock for each share of
Series B preferred stock. We paid the accrued dividends on August 3, 1999,
and on August 9, 1999 we received approval from holders of a majority of the
shares of Series B preferred stock to the automatic conversion of the Series
B preferred stock at the adjusted rate. The conversion will take effect on
August 16, 1999.
BUSINESS STRATEGY
Our new business plan includes the following three principal objectives:
- Acquisition of long-lived natural gas and crude oil reserves;
- Exploration for oil and gas reserves with sophisticated, trend-leading
partners; and
- Investment in a variety of energy industry entrepreneurial
opportunities.
Initially we will focus primarily on the first two objectives, described
in greater detail below. As we pursue these objectives, our business will be
subject to all of the risks associated with a start-up company in the
competitive and volatile oil and gas resources business. See Item 6,
"Management's Discussion and Analysis or Plan of Operation - Risk Factors."
ACQUISITION OF OIL AND GAS RESERVES. Our management is biased toward
acquisitions of natural gas reserves over crude oil reserves, and long-lived
reserves over shorter-lived but sometimes more prolific reserves found offshore
in the Gulf of Mexico. We intend to target negotiated acquisitions and to avoid
more competitive bidding situations that are the norm for the sale of assets to
independents like MGPX.
We will face competition from firms that are well-established, successful,
better capitalized and, in many instances, willing to pay more for properties
than what we might consider prudent. Thus, our success depends on the execution
of our business model to (1) see deals first, (2) quickly identify which deals
are most promising, and (3) negotiate a creative deal structure that, whenever
possible, avoids the payment of more up-front cash than competitors are willing
to pay for an acquisition.
We believe that we will have many opportunities to see deals first by
relying on a wide and diverse network of contacts to identify potential
acquisition opportunities. By proactively initiating negotiations for property
acquisitions, we hope to gain a competitive advantage by agreeing upon property
due diligence and deal structures early in the negotiating process.
Nevertheless, no assurances can be given that our efforts will prove successful.
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OIL AND GAS EXPLORATION. We believe it will be prudent to augment our
property acquisition activities with oil and gas exploration, which has higher
risks but also higher potential rewards. Oil and gas exploration requires
significant outlays of capital and in many situations may offer only a one in
five (or lower) probability of success. We hope to enhance our chances for
success by effectively using available technology, rigorously evaluating
sub-surface and regional data, and, to the extent possible, managing dry-hole,
oil and gas price and financial risks.
We intend to rely on synergistic partnering with sophisticated industry
partners who are at the front end of a budding exploration play. The ideal
partner would tend to be a focused regional independent who has a large
database, a solid grasp on the play's history, and a lead in understanding
technology to exploit the play. Our goal will be to bring to the table the
technological excellence to see a play's potential, together with deal
structuring creativity and capital. However, there is no assurance that we will
be able to successfully negotiate any such partnering agreement or raise the
necessary financing to invest in such a venture, or that any such venture will
yield us any revenues or profits.
EMPLOYEES
We intend to keep our employee staffing levels consistent with existing
workload and business opportunities, thereby minimizing our general and
administrative costs. Currently, Mr. Peak is our only full-time employee. In
the near term, we intend to hire an administrative assistant and another
professional to assist Mr. Peak. We also anticipate that Mr. Peak will be
assisted by an active group of board members acting as consultants, who will
be compensated primarily through the grant of stock options for their
assistance in sourcing, evaluating and closing transactions.
ITEM 2. DESCRIPTION OF PROPERTY.
In April 1998, we established our current corporate office at 17337 Ventura
Boulevard, Suite 224, Encino, California 91316. This office space, which is
provided without charge by Buddy Young, formerly the president and chief
executive officer of, and currently a consultant to, MGPX, is adequate for our
current limited operations. However, in view of our recent change in management
and adoption of a new business plan, we intend to relocate our corporate office
to Houston, Texas within the next few months.
ITEM 3. LEGAL PROCEEDINGS.
As of the date hereof, MGPX is not a party to any material legal
proceedings, and none are known to be contemplated against MGPX.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On August 3, 1999, we distributed to all holders of Series B preferred
stock a request for their written consent to an amendment of the certificate of
determination governing the Series B preferred stock. Under the proposed
amendment, each share of Series B preferred stock would automatically be
converted into 30 fully paid and nonassessable shares of common stock
immediately prior to the close
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of business on August 16, 1999. Without the amendment, each share of Series B
preferred stock would be convertible at the option of the holder into only 12
shares of common stock.
The amendment required the approval of holders of a majority of the
outstanding shares of Series B preferred stock, with each share being
entitled to one vote. Only holders of record at the close of business on July
30, 1999 were entitled to vote on this matter. At the close of business on
July 30, 1999, a total of 16,792 shares of Series B preferred stock were
outstanding, meaning that the holders of at least 8,397 shares of Series B
preferred stock had to vote in favor of the amendment to approve it.
As of August 9, 1999, we had received written consents from the holders
of 13,532, or 80.6%, of the total shares of Series B preferred stock
outstanding, thus constituting the required stockholder approval of the
amendment. Therefore, the conversion will take place just prior to the close
of business on August 16, 1999.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
Our common stock is traded over-the-counter on the OTC Bulletin Board
system under the symbol MGPV. A very limited market exists for the trading of
our common stock.
The table below sets forth the high and low bid prices of our common stock
for each quarter shown, as provided by the Nasdaq Trading and Market Services
Research Unit. Quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
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HIGH LOW
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FISCAL 1998
Quarter ended September 30, 1997 0.51 0.20
Quarter ended December 31, 1997 0.20 0.0625
Quarter ended March 31, 1998 0.125 0.0825
Quarter ended June 30, 1998 0.0625 0.04
FISCAL 1999
Quarter ended September 30, 1998 0.05 0.05
Quarter ended December 31, 1998 0.0625 0.05
Quarter ended March 31, 1999 0.25 0.04
Quarter ended June 30, 1999 0.125 0.0625
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HOLDERS
The approximate number of holders of record of common stock as of August
3, 1999 was 122.
DIVIDENDS
Holders of common stock are entitled to receive such dividends as the board
of directors may from time to time declare out of funds legally available for
the payment of dividends. No dividends have been paid on our common stock, and
we do not anticipate paying any dividends on common stock in the foreseeable
future. No dividends are payable to holders of common stock until all dividends
due on our preferred stock have been paid.
Holders of Series B preferred stock are entitled to receive, when and as
declared by the board of directors out of legally available funds, a cumulative
6% per annum dividend payable quarterly. Such dividends accrue and are
cumulative whether or not such dividends are paid. On July 26, 1999, the board
declared, and on August 3, 1999, we paid, all cumulative dividends that had
accrued on the Series B preferred stock through the fiscal year ended June 30,
1999, in the total amount of $75,565.
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RECENT SALES OF UNREGISTERED SECURITIES
Except as otherwise indicated, we believe that each of the transactions
described in the table below was exempt from the registration requirements of
the Securities Act of 1933 pursuant to Section 4(2) as a transaction not
involving any public offering. In each case, the number of investors was
limited, the investors were either accredited or otherwise qualified and had
access to material information about MGPX, and restrictions were placed on the
resale of the securities sold.
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DATE TITLE AMOUNT CONSIDERATION RECIPIENT(S)
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6/99 Options to buy 100,000 Services MGPX president
common stock options rendered and chief executive
officer
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
PLAN OF OPERATION
We have received no revenues from continuing operations during the last
two completed fiscal years, and we do not expect to receive any revenues from
operations unless and until we are able to implement our plan to enter into
the oil and gas resources business. We have recently taken steps to
restructure our capitalization, which we hope will enable us to now raise the
new equity financing that we will need before we can begin making oil and gas
property acquisitions and entering into joint oil and gas exploration
agreements. Initially, we intend to raise this new financing through the sale
of common stock in private placements. As we seek financing, we are
concurrently seeking to negotiate possible transactions, including those
described below.
We are in discussion with a company regarding a possible small acquisition
of proven reserves and a carried interest in a number of onshore exploration
prospects. The bulk of the estimated $1.5 million acquisition price would be for
the imputed value of the exploration projects.
Concurrent with this transaction, we also are seeking to negotiate a
geological and geophysical ("G&G") funding agreement with a private, Houston
based exploration company. The terms of the G&G agreement would broadly require
us to fund a fixed amount of monthly salary costs for their technical staff as
well as seismic and leasehold expenses. Under this arrangement, MGPX's partner
would manage the exploration project and attempt to market the generated
prospects to other oil companies. Typical terms in this type of exploration
agreement would involve a recoupment of at least part of the G&G costs plus a
carried working interest (usually 20-25%) in the first exploration well. The
recovery of all of the G&G expenses would go to MGPX, and the working interest
(in the event of a successful well that reaches payout) would be split between
MGPX and its partner. The G&G agreement under discussion would require us to
fund approximately $3-4 million over the next three years.
It is uncertain whether we will be able to reach agreements as to either of
these transactions or any other transaction, or that we will be able to obtain
the necessary equity financing to fund such
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transactions. Even if we are able to finance and complete either of these
transactions, there can be no assurance that they will be profitable.
In addition to the financing we would need to complete these proposed
transactions, we will also require financing to meet other working capital
costs, including the cost of reviewing and negotiating transactions and other
ordinary general and administrative costs required for a publicly traded
company. We estimate that the level of working capital needed for these general
and administrative costs for the next twelve months will be approximately $1
million. However, this estimate is subject to change, depending on the number of
transactions in which we ultimately become involved. In addition, funding will
be required for follow-on development of working interest obligations of any
successful exploration prospects.
YEAR 2000 ISSUE
Our business does not currently utilize any electronic processing systems
and therefore is not directly at risk for having systems that will not recognize
the year 2000 ("Y2K") or treat any date after December 31, 1999 as a date during
the twenty-first century. However, no assurances can be given that we will be
able to avoid all Y2K problems, especially those that might originate with third
parties with whom we do business, such as financial institutions, business
partners, consultants, vendors and customers. We have not undertaken any
investigation to determine the Y2K readiness of any such parties or the
disruptions or costs to our business if any such party were to have a Y2K
problem.
RISK FACTORS
We intend to avail ourselves of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995 with respect to our forward-looking
statements in this report and in press releases and other communications by
including the following cautionary statements identifying important risk factors
that could cause our actual results to differ materially from those estimated or
projected in the forward-looking statements.
WE HAVE NO OPERATING HISTORY IN THE OIL AND GAS INDUSTRY. We have no
operating history with respect to our start-up oil and gas acquisition and
exploration activities, which we expect to commence in September 1999.
Consequently, there is no operating history upon which to base an assumption
that we will be able to successfully implement our business plans.
WE HAVE NO CURRENT OIL AND GAS PRODUCTION AND NO PROVEN RESERVES. We have
not yet purchased any oil and gas production and have no "proven reserves."
Proven reserves are oil and gas reserves that geological and engineering data
have demonstrated with reasonable certainty to be recoverable in future years
from known reservoirs under existing economic and operating conditions. Our
success is therefore highly dependent on our ability to quickly and profitably
acquire and explore for oil and natural gas reserves.
WE ANTICIPATE THAT WE WILL INCUR LOSSES IN OUR FIRST YEAR OF OPERATIONS
AND MAY CONTINUE TO INCUR LOSSES THEREAFTER. We expect to incur losses during
at least our first year of operations in the oil and gas business, and we may
continue to incur losses thereafter, depending on whether we
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generate sufficient revenue from producing reserves acquired either through
acquisitions or drilling activities.
WE NEED NEW FINANCING TO IMPLEMENT OUR BUSINESS PLAN, AND IF WE CANNOT
OBTAIN FINANCING ON ACCEPTABLE TERMS WE WILL NOT BE ABLE TO CONDUCT OUR BUSINESS
AS PROPOSED. We presently have no operating revenues. It is anticipated that,
after taking into account the payment of the past due dividends on our Series B
preferred stock, we have cash on hand of approximately only $350,000. Because of
our low level of working capital, we will need additional capital for a number
of purposes, and if we cannot obtain financing on acceptable terms we will not
be able to implement our business plan as proposed. We may need additional
financing for such things as the following:
- We will need capital to pay for our general and administrative
costs, which we estimate to be $1 million for the first twelve
months.
- We will need additional capital to finance any proposed cash
acquisitions of producing oil and gas properties.
- We will also need additional capital to pay for our share of costs
relating to the drilling of prospects and development of any
prospects that are successful, to exercise lease options, and to
acquire oil and gas leases. The total amount of our capital needs
will be determined in part by the number of prospects generated
and by the working interest that we retain in those prospects.
Initially, our only likely source of funding will be additional equity
offerings, which could cause substantial dilution of our common stock. In the
future, we hope to also gain access to capital from other funding sources,
including borrowings from financial institutions and offerings of debt
securities. Such debt financing would, however, increase our leverage and add to
our need for cash to service such debt.
Our ability to raise additional capital will depend on the results of our
operations and the status of various capital and industry markets at the time
such additional capital is sought. Accordingly, there can be no assurances that
capital will be available to us from any source or that, if available, it will
be on terms acceptable to us.
BECAUSE OF OUR LACK OF DIVERSIFICATION, FACTORS HARMING THE OIL AND GAS
INDUSTRY IN GENERAL, INCLUDING DOWNTURNS IN PRICES FOR OIL AND GAS, WOULD BE
ESPECIALLY HARMFUL TO US. As an independent energy company, our revenues and
profits will be substantially dependent on the oil and gas industry in general
and the prevailing prices for oil and natural gas in particular. Circumstances
that harm the oil and gas industry in general will have an especially harmful
effect on us. Oil and gas prices have been and are likely to continue to be
volatile and subject to wide fluctuations in response to any of the following
factors:
- relatively minor changes in the supply of and demand for oil and
gas;
- political conditions in international oil producing regions;
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- the extent of domestic production and importation of oil in relevant
markets;
- the level of consumer demand;
- weather conditions;
- the competitive position of oil or gas as a source of energy as
compared with other energy sources;
- the refining capacity of oil purchasers; and
- the effect of federal and state regulation on the production,
transportation and sale of oil and gas.
It is likely that adverse changes in the oil or natural gas markets or the
regulatory environment would have an adverse effect on our ability to obtain
capital from lending institutions, industry participants, private or public
investors or other sources.
WE WILL EXPERIENCE INTENSE COMPETITION IN THE OIL AND GAS INDUSTRY, WHICH
MAY MAKE IT DIFFICULT FOR US TO SUCCEED. The oil and gas industry is highly
competitive. If we are not able to compete effectively, we will not succeed. A
number of factors may give our competitors advantages over us. For example,
virtually all of our competitors have significantly greater financial resources
and a significantly greater number of experienced and trained managerial and
technical personnel than we do. There can be no assurance that we will be able
to compete effectively with such companies.
WE ARE SUBJECT TO SIGNIFICANT OPERATING HAZARDS AND UNINSURED RISKS, ONE OR
MORE OF WHICH MAY CREATE SIGNIFICANT LIABILITIES FOR US. Our oil and gas
operations will be subject to all of the risks and hazards typically associated
with the exploration for, and the development and production of, oil and gas. In
accordance with customary industry practices, we intend to maintain insurance
against some, but not all, of these risks and losses. The occurrence of a
significant event not fully insured or indemnified against could seriously harm
us. Moreover, no assurance can be given that we will be able to maintain
adequate insurance in the future at rates we consider reasonable. Risks in
drilling operations include cratering, explosions, uncontrollable flows of oil,
gas or well fluids, fires, pollution, formations with abnormal pressures,
pipeline ruptures or spills, releases of toxic gases and other environmental
risks, and cost overruns. Our activities are also subject to perils specific to
marine operations, such as capsizing, collision and damage or loss from severe
weather. These hazards can cause personal injury and loss of life, severe damage
to and destruction of property and equipment, pollution or environmental damage
and suspension of operations.
WE ARE SUBJECT TO SIGNIFICANT EXPLORATION RISKS, INCLUDING THE RISK THAT WE
MAY NOT BE ABLE TO FIND OR PRODUCE ENOUGH OIL AND GAS TO GENERATE ANY PROFITS.
Our exploration activities involve significant risks, including the risk that we
may not be able to find or produce enough oil and gas to generate any profits.
There can be no assurance that the use of technical expertise as applied to
geophysical or geological data will ensure that any well we drill will discover
oil or gas. Further, there is no way to know in advance of drilling and testing
whether any exploration prospect will yield oil or gas in sufficient quantities
to make money for us. In addition, we are highly dependent on seismic
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activity and the related application of new technology as a primary exploration
methodology. There can be no assurance that our efforts will be successful.
WE MAY NOT BE ABLE TO ACQUIRE THE OIL AND GAS LEASES WE NEED TO SUSTAIN
PROFITABLE OPERATIONS. There can be no assurance that any oil and gas venture we
may become involved with will be successful in acquiring farmouts, seismic
permits, lease options, leases or other rights to explore for or recover oil and
gas. Consequently, the area covered by any potential exploration program that
could be explored through drilling could be reduced if such leases, permits and
options are not acquired. Both the United States Department of the Interior and
the various states award oil and gas leases on a competitive bidding basis.
Further, non-governmental owners of onshore mineral interests are not obligated
to lease their mineral rights to us unless we have already obtained lease
options. Other major and independent oil and gas companies with financial
resources significantly greater than ours may bid against us for the purchase of
oil and gas leases.
SHUT-IN WELLS, CURTAILED PRODUCTION AND OTHER PRODUCTION INTERRUPTIONS MAY
AFFECT OUR ABILITY TO DO BUSINESS. In the event that we ultimately initiate
production of and generate income from oil and gas properties, such production
may be curtailed or shut in for considerable periods of time due to any one or a
combination of the following factors:
- a lack of market demand;
- problems with a well;
- government regulation;
- pipeline and processing interruptions;
- production allocations;
- diminished pipeline capacity; and
- natural disasters.
EXISTING AND FUTURE GOVERNMENTAL REGULATION, TAXATION AND PRICE CONTROLS
COULD SERIOUSLY HARM US. Oil and gas production and exploration are subject to
comprehensive federal, state and local laws and regulations controlling the
exploration for and production and sale of oil and gas and the possible effects
of such activities on the environment. Failure to comply with such rules and
regulations could result in substantial penalties and may harm us. Present, as
well as future, legislation and regulations could cause additional expenditures,
restrictions and delays in our business, the extent of which cannot be predicted
and which may require us to delay, limit substantially or cease operations in
some circumstances. In most areas where we plan to conduct activities, there are
statutory provisions regulating the production of oil and natural gas which may
restrict the rate of production and adversely affect revenues. Through the
Federal Energy and Regulatory Commission, the federal government regulates the
interstate transportation of oil and natural gas. The FERC has in the past
regulated the prices at which oil and gas could be sold. Federal reenactment of
price controls or increased regulation of the transport of oil and natural gas
could seriously harm us. In addition, our
13
<PAGE>
operations are subject to numerous laws and regulations governing the discharge
of oil and hazardous materials into the environment or otherwise relating to
environmental protection, including the Oil Pollution Act of 1990. These laws
and regulations have continually imposed increasingly strict requirements for
water and air pollution control, solid waste management, and strict financial
responsibility and remedial response obligations relating to oil spill
protection. The cost of complying with such environmental legislation could have
a general harmful effect on our operations.
THESE IS ONLY SPORADIC TRADING IN OUR COMMON STOCK ON THE OVER-THE-COUNTER
MARKET, WHICH MAKES OUR STOCK MORE DIFFICULT TO SELL THAN THE STOCK OF COMPANIES
WITH MORE ACTIVE TRADING MARKETS. Our common stock is not listed or quoted for
trading on a national securities market, nor is it quoted on the OTC Bulletin
Board. There is only sporadic trading in our common stock on the
over-the-counter market, which makes our stock more difficult to sell than the
stock of companies with more active trading markets. No assurances can be given
that a more active trading market for our common stock will develop.
WE HAVE NOT PAID DIVIDENDS ON OUR COMMON STOCK AND DO NOT EXPECT TO DO
SO IN THE FORESEEABLE FUTURE, AND SO OUR STOCKHOLDERS WOULD HAVE TO SELL
THEIR SHARES TO RECEIVE A RETURN ON THEIR INVESTMENT. We have never paid a
dividend on our common stock and do not expect to do so in the foreseeable
future, and so our stockholders will not be able to receive a return on their
investment unless they sell their shares. We anticipate that all earnings, if
any, will be retained for development of our business.
OUR STOCKHOLDERS COULD EXPERIENCE DILUTION IN THE VALUE OF THEIR SHARES
BECAUSE OF ADDITIONAL ISSUANCES OF COMMON STOCK. The issuance of any additional
shares of our common stock could result in a reduction in the book value per
share or market price per share of our outstanding shares of common stock and
would reduce the proportionate ownership and voting power of such shares.
We have 12,375,000 authorized shares of common stock, with 1,509,865
shares outstanding as of June 30, 1999. In addition, we have reserved 100,000
shares of common stock for issuance upon exercise of a like number of options
granted to our former president and chief executive officer. Further, on
August 9, 1999 the holders of a majority of the 16,792 outstanding shares of
our Series B preferred stock approved the automatic conversion on August 16,
1999 of each outstanding share of Series B preferred stock into 30 shares of
common stock, or a total of 503,760 shares of common stock.
The board of directors has the power to issue any and all authorized but
unissued shares of common stock without stockholder approval. It is our plan
to issue additional shares of common stock in order, for example, to raise
capital to sustain operations, to finance future oil and gas property
acquisitions and exploration projects, and to provide incentives for our
officers, employees, directors and consultants.
WE DEPEND ON THE SERVICES OF OUR PRESIDENT AND CHIEF EXECUTIVE OFFICER AND
COULD BE SERIOUSLY HARMED IF WE LOST HIS SERVICES. We depend heavily on the
services of Kenneth R. Peak, our new president and chief executive officer, who
is currently our only full-time employee. We do not maintain any "key person"
life insurance policy on or have an employment agreement with Mr Peak.
14
<PAGE>
The loss of his services could prevent us from implementing our business plan.
Our success will also depend in part upon our future ability to attract and
retain additional qualified personnel.
WE DEPEND ON INDUSTRY PARTNERS AND COULD BE SERIOUSLY HARMED IF THEY DO NOT
PERFORM SATISFACTORILY, WHICH IS USUALLY NOT WITHIN OUR CONTROL. Because we
expect to have only a limited number of employees and limited operating
revenues, we will be largely dependent upon industry partners for the success of
our oil and gas exploration projects for the foreseeable future. We could be
seriously harmed if our industry partners do not perform satisfactorily on
projects that affect us. We may often have no control over factors that would
influence their performance.
ANTI-TAKEOVER PROVISIONS OF OUR ARTICLES OF INCORPORATION, BYLAWS, AND
NEVADA LAW COULD ADVERSELY IMPACT A POTENTIAL ACQUISITION BY THIRD PARTIES THAT
MAY ULTIMATELY BE IN THE FINANCIAL INTERESTS OF OUR STOCKHOLDERS. Our articles
of incorporation and by-laws and the Nevada General Corporation Law contain
provisions that may discourage unsolicited takeover proposals. These provisions
could have the effect of inhibiting fluctuations in the market price of our
shares that could result from actual or rumored takeover attempts, preventing
changes in our management or limiting the price that investors may be willing to
pay for shares of common stock. These provisions, among other things, authorize
the board of directors to designate the terms of and issue new series of
preferred stock, limit the personal liability of directors, require us to
indemnify directors and officers to the fullest extent permitted by applicable
law and impose restrictions on business combinations with some interested
parties.
15
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Certified Public Accountants...................................... 17
Balance Sheet as of June 30, 1999....................................................... 18
Statements of Operations for the Years Ended June 30, 1999 and 1998 .................... 19
Statements of Shareholders' Equity for the Years Ended June 30, 1999 and 1998 .......... 20
Statements of Cash Flows for the Years Ended June 30, 1999 and 1998 .................... 21
Notes to Financial Statements........................................................... 22
</TABLE>
16
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
MGPX Ventures, Inc.
We have audited the accompanying balance sheet of MGPX Ventures, Inc. as of June
30, 1999, and the related statements of operations, shareholders' equity, and
cash flows for each of the two years in the 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 financial statements referred to above present fairly, in
all material respects, the financial position of MGPX Ventures, Inc. as of June
30, 1999, and the results of its operations and its cash flows for each of the
two years in the period ended June 30, 1999 in conformity with generally
accepted accounting principles.
/s/ Singer Lewak Greenbaum & Goldstein LLP
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
July 22, 1999
17
<PAGE>
MGPX VENTURES, INC.
BALANCE SHEET
JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 466,189
Prepaid insurance 8,003
Income tax refund receivable 15,697
-----------
TOTAL CURRENT ASSETS $ 489,889
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Income taxes payable $ 800
Preferred stock dividends payable 75,565
-----------
Total current liabilities 76,365
-----------
SHAREHOLDERS' EQUITY
Convertible Preferred stock, Series B, $0.04 par value
$30 per share liquidation preference and certain voting rights
125,000 shares authorized
16,792 shares issued and outstanding 672
Common stock, $0.04 par value
12,375,000 shares authorized
1,509,865 shares issued and outstanding 60,395
Additional paid-in capital 2,168,399
Accumulated deficit (1,815,942)
-----------
Total shareholders' equity 413,524
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 489,889
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
MGPX VENTURES, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
GENERAL AND ADMINISTRATIVE EXPENSES $ 107,725 $ 16,436
----------- --------------
LOSS FROM OPERATIONS (107,725) (16,436)
----------- --------------
OTHER INCOME
Interest income 23,407 6,443
Miscellaneous income -- 1,000
----------- --------------
Total other income 23,407 7,443
----------- --------------
LOSS FROM CONTINUING OPERATIONS BEFORE PROVISION FOR
INCOME TAXES (84,318) (8,993)
PROVISION FOR INCOME TAXES 800 800
----------- --------------
NET LOSS FROM CONTINUING OPERATIONS (85,118) (9,793)
----------- --------------
DISCONTINUED OPERATIONS
Income from operations, net of provision for income taxes of
$0 and $506,872 -- (497,044)
Gain on disposition of operations, net of provision for income
taxes of $0 -- 207,572
----------- --------------
Net income (loss) from discontinued operations -- (289,472)
----------- --------------
NET LOSS $ (85,118) $ (299,265)
=========== ==============
BASIC LOSS PER SHARE
From continuing operations $ (0.06) $ (0.01)
From discontinued operations -- (0.17)
----------- --------------
TOTAL BASIC LOSS PER SHARE $ (0.06) $ (0.18)
=========== ==============
WEIGHTED-AVERAGE SHARES OUTSTANDING 1,509,865 1,692,542
=========== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
MGPX VENTURES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------- -------------------- ADDITIONAL ACCUMULATED
SHARES AMOUNT SHARES AMOUNT PAID-IN CAPITAL DEFICIT TOTAL
--------- --------- --------- --------- ---------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
June 30, 1997 16,792 672 1,872,241 74,890 2,154,904 (1,371,107) 859,359
Cash dividends
payable on Series
B preferred stock (30,226) (30,226)
Purchase and
cancellation of
common stock in
connection with the
sale of operations (362,376) (14,495) 13,495 (1,000)
Net loss (299,265) (299,265)
--------- --------- --------- --------- ---------------- ------------- ----------
Balance,
June 30, 1998 16,792 672 1,509,865 60,395 2,168,399 (1,700,598) 528,868
--------- --------- --------- --------- ---------------- ------------- ----------
Cash dividends
payable on Series
B preferred stock (30,226) (30,226)
Net loss (85,118) (85,118)
--------- --------- --------- --------- ---------------- ------------- ----------
Balance,
June 30, 1999 16,792 $ 672 1,509,865 $ 60,395 $2,168,399 $(1,815,942) $413,524
========= ========= ========= ========= ================ ============= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
MGPX VENTURES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss from continuing operations $ (85,118) $ (9,793)
(Increase) decrease in
Prepaid expenses 8,002 (16,005)
Income tax refund receivable (15,697) --
Increase in
Accounts payable (900) 900
Income taxes payable 800 --
--------- ---------
Net cash used in continuing operating activities (92,913) (24,898)
Net cash used in discontinued operating activities -- (130,530)
--------- ---------
Net cash used in operating activities (92,913) (155,428)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets, net of cash -- 650,000
--------- ---------
Net cash provided by continuing investing activities -- 650,000
Net cash used in discontinued investing activities -- (21,116)
--------- ---------
Net cash provided by investing activities -- 628,884
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of common stock -- (1,000)
--------- ---------
Net cash used in continuing financing activities -- (1,000)
Net cash provided by discontinued financing activities -- 82,612
--------- ---------
Net cash provided by financing activities -- 81,612
--------- ---------
Net increase (decrease) in cash and cash equivalents (92,913) 555,068
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 559,102 4,034
--------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 466,189 $ 559,102
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
MGPX VENTURES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND BUSINESS
Maple Enterprises, Inc. ("Maple") was incorporated under the laws of
the State of Nevada on August 7, 1986. On July 8, 1988, Maple acquired
approximately 99% of the outstanding shares of Warner Technologies,
Inc. ("Warner"), a privately held California corporation, in exchange
for shares of common stock and stock options. On September 16, 1988,
Warner merged into Maple, and the name of the surviving company was
changed to Warner Technologies, Inc. Warner provided energy efficiency
products and services in three principal areas: 1) turnkey lighting
retrofits, 2) building automation & control systems, and 3) strategic
energy planning services. These products and services were delivered to
commercial, industrial, and institutional buildings through contracts
with building owners and managers, as well as directly to utilities for
their customers' benefit. Warner was headquartered in Los Angeles and
maintained regional offices in Boston and San Diego.
Effective December 31, 1997, Warner sold substantially all of its
operations to its President and Executive Vice President. On March 31,
1998, Warner was renamed MGPX Ventures, Inc. (the "Company"), and the
President and Executive Vice President resigned their positions with
the Company.
The Company is currently operating as a "shell" corporation, has
minimal operations, and is headquartered in Encino, California. The
Company is in the process of identifying potential merger and
acquisition candidates.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
LOSS PER SHARE
During the year ended June 30, 1999, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share."
Basic loss per share is computed by dividing income available to common
shareholders by the weighted-average number of common shares
outstanding. Diluted loss per share is computed similar to basic loss
per share except that the denominator is increased to include the
number of additional common shares that would have been outstanding if
the potential common shares had been issued and if the additional
common shares were dilutive. Diluted loss per share is not presented
for 1999 and 1998 because common stock equivalents are anti-dilutive.
INCOME TAXES
The Company accounts for income taxes under the asset and liability
method of accounting. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected
22
<PAGE>
MGPX VENTURES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES (Continued)
to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. A valuation allowance is
required when it is less likely than not that the Company will be able
to realize all or a portion of its deferred tax assets.
ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses
included in the determination of net earnings from continuing
operations and discontinued operations during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly-liquid investments purchased with original maturities of three
months or less to be cash equivalents.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In October 1998, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 134, "Accounting for Mortgage-Backed Securities
Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise," which is effective for financial
statements with the first fiscal quarter beginning after December
15, 1998. This statement is not applicable to the Company.
In February 1999, the FASB issued SFAS No. 135, "Rescission of FASB
Statement No. 75 and Technical Corrections," which is effective for
financial statements with fiscal years beginning February 1999. This
statement is not applicable to the Company.
In June 1999, the FASB issued SFAS No. 136, "Transfers of Assets to
a Not-for-Profit Organization or Charitable Trust That Raises or
Holds Contributions for Others," which is effective for financial
statements with fiscal years beginning after December 15, 1999. This
statement is not applicable to the Company.
In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FASB Statement No. 133," which is effective upon
issuance. This statement is not applicable to the Company.
23
<PAGE>
MGPX VENTURES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
- --------------------------------------------------------------------------------
NOTE 3 - DISPOSAL OF OPERATIONS
Effective December 31, 1997, Warner Technologies, Inc. sold
substantially all of its net assets used in operations to management
for $650,000. Net proceeds were approximately $585,000 after closing
costs. As a condition of the transaction, management agreed to the
cancellation of its stock options and the sale of its common shares to
the Company for $1,000, representing more than a 25% reduction in
beneficial control of common shares. As a result, the Company's
operations through December 31, 1997 are reported as discontinued
operations. The results from discontinued operations included total
revenues of approximately $0 and $2,605,000 and net income from
operations of approximately $0 and $35,000 for the years ended June 30,
1999 and 1998, respectively.
Net assets sold to management and the resulting pretax gain were
determined as follows:
<TABLE>
<S> <C>
Current assets $ 1,071,562
Property, plant, and equipment 103,170
Other assets 6,665
Current liabilities (788,563)
Non-current liabilities (15,406)
-------------
Net assets sold 377,428
Cash received 650,000
Less closing costs (65,000)
-------------
PRETAX GAIN ON SALE OF ASSETS $ 207,572
=============
</TABLE>
NOTE 4 - SHAREHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
On December 31, 1992, the Company issued 16,792 shares of Series B
Convertible Preferred Stock at $30.00 per share and 100,752 Class B
Warrants to purchase common stock at exercise prices between $3.00 and
$5.00 per share in a private placement. Each share of Series B
Preferred Stock is convertible at any time, at the option of the
holder, into 12 shares of common stock. If any holder converts and
dividends are accrued and unpaid on the date of conversion, the Company
is required to pay such dividends within 60 days. The Company has the
right to convert Series B Preferred shares into 12 shares of common
stock after December 31, 1994, if the closing bid price of the common
stock on any ten consecutive business days equals or exceeds $4.00 per
share, and all quarterly dividends prior to the date of conversion have
been paid.
24
<PAGE>
MGPX VENTURES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
- --------------------------------------------------------------------------------
NOTE 4 - SHAREHOLDERS' EQUITY (CONTINUED)
CONVERTIBLE PREFERRED STOCK (Continued)
Series B holders are entitled to receive a cumulative 6% per annum
dividend payable quarterly. Series B shares and Class B Warrants are
restricted from trading in accordance with governing Securities and
Exchange Commission ("SEC") rules and regulations. Series B
shareholders are entitled to preference upon liquidation equal to the
stated value of $30.00 per share plus any accrued but unpaid dividends
up to the time of liquidation, but have no voting rights unless the
Company fails to make two consecutive dividend payments. In that case,
Series B holders would have cumulative voting rights equal to three
times the number of common shares into which their preferred shares may
be converted.
The Class B Warrants expired on December 31, 1995.
By order of its Board of Directors, the Company deferred payment of the
dividends payable for the quarters ended March 31, 1997 through June
30, 1999. At June 30, 1999, total cumulative unpaid dividends payable
were $75,565.
STOCK OPTIONS
During the year ended June 30, 1999, the Company granted 100,000
non-qualified stock options to the Company's President and Chief
Executive Officer that may be exercised at a price of $1 per share.
These options vested immediately upon the date of issuance and expire
three years from the date of grant.
The following table summarizes certain information relative to stock
options:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICE
---------- -------------
<S> <C> <C>
Outstanding, June 30, 1997 564,268 $ 0.25 - 0.88
Expired/canceled (564,268) $ 0.25 - 0.88
---------
Outstanding, June 30, 1998 -- $ --
Granted 100,000 $ 1.00
---------
OUTSTANDING, JUNE 30, 1999 100,000 $ 1.00
=========
EXERCISABLE, JUNE 30, 1999 100,000 $ 1.00
=========
</TABLE>
The weighted-average life of the options outstanding and exercisable at June 30,
1999 is 2.92 years.
25
<PAGE>
MGPX VENTURES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
- --------------------------------------------------------------------------------
NOTE 4 - SHAREHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS (Continued)
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation
cost other than that required to be recognized by APB Opinion No. 25
for the difference between the fair value of the Company's common stock
at the grant date and the exercise price of the options has been
recognized. Had compensation cost for the Company's stock options been
determined based on the fair value at the grant date for awards
consistent with the provisions of SFAS No. 123, the Company's net loss
and loss per share would have been increased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JUNE 30,
--------------------
1999 1998
-------- ---------
<S> <C> <C>
Net loss as reported $(85,118) $(299,265)
Net loss, pro forma $(85,118) $(299,265)
Basic loss per share as reported $ (0.06) $ (0.18)
Basic loss per share, pro forma $ (0.06) $ (0.18)
</TABLE>
The fair value of these options was estimated at the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions for the year ended June 30, 1999: dividend
yield of 0%; expected volatility of 100%; risk-free interest rate of
5.64%; and expected life of 3 years. The weighted-average exercise
price was $1 at June 30, 1999, and the weighted average per share value
of options granted during the year ended June 30, 1999 was $0.14.
For options granted during the year ended June 30, 1999 where the
exercise price exceeded the stock price at the date of the grant, the
weighted-average fair value of such options was $0.03, and the
weighted-average exercise price of such options was $1. No options were
issued during the year ended June 30, 1999 where the exercise price was
less than the stock price at the date of the grant or where the
exercise price equaled the stock price at the date of the grant.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion,
the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
26
<PAGE>
MGPX VENTURES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
- --------------------------------------------------------------------------------
NOTE 5 - INCOME TAXES
Significant components of the provision for taxes based on income for
the years ended June 30 are as follows:
<TABLE>
<CAPTION>
1999 1998
------------- ------------
<S> <C> <C>
Current
Federal $ - $ -
State 800 800
------------ -----------
800 800
------------ -----------
Deferred
Federal - 494,750
State - 12,122
------------ -----------
- 506,872
------------ -----------
PROVISION FOR INCOME TAXES $ 800 $ 507,672
============ ===========
</TABLE>
A reconciliation of the provision for income tax expense with the
expected income tax computed by applying the federal statutory income
tax rate to income before provision for income taxes for the years
ended June 30 is as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Income tax provision computed at federal
statutory tax rate 34.0% 34.0%
Change in deferred income tax valuation reserve (40.0) 223.0
State taxes, net of federal benefit 6.0 6.0
Other - 1.0
------------ ------------
TOTAL - % 264.0%
============ ============
</TABLE>
As of June 30, 1999, the Company had federal and state net operating
loss carryforwards of approximately $1,381,000 and $120,000,
respectively, which expire through 2019 and 2003, respectively.
Significant components of the Company's deferred tax assets and
liabilities for federal and state income taxes as of June 30, 1999
consisted of the following:
<TABLE>
<S> <C>
Deferred tax assets
Net operating loss carryforwards $ 476,949
Other 476,949
----------
NET DEFERRED TAX ASSET $ -
==========
</TABLE>
27
<PAGE>
MGPX VENTURES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
- --------------------------------------------------------------------------------
NOTE 5 - INCOME TAXES (CONTINUED)
During the year ended June 30, 1999, the Company did not utilize any
of its federal net operating loss carryforwards.
NOTE 6 - YEAR 2000 ISSUE
The Company does not currently utilize any electronic processing
systems and therefore is not directly at risk for having systems
that will not recognize the year 2000 ("Y2K") or treat any date
after December 31, 1999 as a date during the twenty-first century.
However, the Company may be subject to Y2K problems that might
originate with third parties with whom the Company does business,
such as financial institutions, business partners, consultants,
vendors and customers. The Company has not undertaken any
investigation to determine the Y2K readiness of any such parties or
the disruptions or costs to the Company if any such party were to
have a Y2K problem.
28
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
29
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The following table sets forth the current executive officers and
directors of and a key consultant to MGPX:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Peter Schlesinger 65 Chairman, chief financial
officer and director
Kenneth R. Peak 54 President, chief executive
officer, secretary and director
Emanuel Batler 73 Director
Buddy Young 64 Consultant (former president,
chief executive officer,
secretary and director)
</TABLE>
PETER SCHLESINGER has been a director of MGPX since December 1993 and
became chairman and chief financial officer following our sale of assets on
March 31, 1998. A Canadian citizen, Mr. Schlesinger attended McGill University
and Columbia University, receiving a Bachelor of Commerce degree in 1962. He was
a partner of a Canadian stockbrokerage firm, Annett Partners, for 10 years and
manager of a Bermuda investment company, Tatra Ltd., since 1974. He was
president of Halton Insurance, a Bermuda insurance company, listed on The
Toronto Stock Exchange, from 1988 to 1994. For ten years he has also served as
president of the Canadian Parkinson Disease Foundation.
KENNETH R. PEAK was appointed president, chief executive officer, secretary
and a director of MGPX on July 26, 1999. Mr. Peak has a wealth of experience in
the oil and gas resource industry. Before joining MGPX, Mr. Peak was the
president of Peak Enernomics, Incorporated, an oil and gas consulting firm that
he formed in 1990. Mr. Peak began his energy career in 1973 as a commercial
banker in First Chicago's energy group. He became treasurer of Tosco Corporation
in 1980 and chief financial officer of Texas International Company ("TIC") in
1982. His tenure with TIC included serving as president of TIPCO, the domestic
operating subsidiary of TIC's oil and gas operations. Mr. Peak has also served
as chief financial officer of Forest Oil and as an investment banker with Howard
Weil. Mr. Peak was an officer in the U.S. Navy from 1968 to 1971, serving as a
cryptologist and reporting operationally to the National Security Agency, with
collateral duties to the Central Intelligence Agency. Mr. Peak received a B.S.
degree in physics from Ohio University and an MBA from Columbia University. He
currently serves as a director of NL Industries, Inc., a worldwide manufacturer
and marketer of titanium dioxide pigments whose stock is listed on the New York
Stock Exchange; Cheniere Energy, Inc., an oil and gas exploration company whose
stock is traded on the Nasdaq SmallCap Market; and Cellxion, Inc., a privately
owned manufacturing and construction company serving the cellular telephone
industry.
30
<PAGE>
EMANUEL BATLER has been a director of MGPX since December 1998. From 1960
to 1969, Mr. Batler was vice-president of Philips Electronics Industries Ltd.,
the Canadian division of the Dutch-based Philips Company, with responsibility
for marketing as well as for corporate mergers and acquisitions. Subsequently,
he founded and was president of Glentech Investments, a venture capital company
active in both the United States and Canada. After negotiating the sale of this
business, Mr. Batler was active from 1974 to 1995 in the commodity futures
business, managing firms in Toronto, Hong Kong and Chicago. Since 1970, Mr.
Batler has also been chairman of the board of Eclectic Management Sciences,
Ltd., a private holding company that controls several operating businesses.
BUDDY YOUNG served as president, executive officer and a director of MGPX
from March 31, 1998 until July 26, 1999, at which time he resigned from all of
his positions and agreed to continue to act as a consultant to MGPX through
October 31, 1999 or until our next stockholders meeting, whichever is sooner.
Since August 1997, Mr. Young has also been engaged in a privately owned merger
and acquisition business doing business under the name of Advantage Mergers and
Acquisitions. In addition, since August 1998 Mr. Young has been the president
and executive officer of Advanced Knowledge, Inc. ("AKI"), a reporting company
that produces and distributes workforce training videos. Currently there is no
public trading market for the stock of AKI. During Mr. Young's career he has
served in various executive capacities in the entertainment industry. From 1992
until July 1996, Mr. Young served as president and chief executive officer of
Bexy Communications, Inc. ("Bexy"), a reporting company whose stock traded on
the OTC Bulletin Board. Bexy's core business was the production, financing and
distribution of television programming. From June 1983 until December 1991, Mr.
Young was president, chief executive officer and a director of Color Systems
Technology, Inc., a publicly held company whose stock traded on the American
Stock Exchange. Color Systems' major line of business is the use of its patented
computer process for the conversion of black and white motion pictures to color.
Prior to joining Color Systems, Mr. Young served from 1965 to 1975 as director
of West Coast Advertising and Publicity for United Artists Corporation, from
1975 to 1976 as director of Worldwide Advertising and Publicity for Columbia
Pictures Corp., from 1976 to 1979 as vice president of Worldwide Advertising and
Publicity for MCA/Universal Pictures, Inc., and from 1981 to 1982 as a principal
in the motion picture consulting firm of Powell & Young, which represented some
of the industry's leading film makers. For the past twenty-five years Mr. Young
has been an active member of The Academy of Motion Picture Arts and Sciences and
has served on a number of industry-wide committees.
Officers of MGPX are elected by the board of directors and hold office
until their successors are chosen and qualified, until their death or until they
resign or have been removed from office. All corporate officers serve at the
discretion of the board of directors. There are no family relationships between
any director or executive officer and any other director or executive officer of
MGPX.
Directors of MGPX hold office until the next annual stockholders meeting,
until successors are elected and qualified or until their earlier resignation or
removal.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors
and executive officers, and persons who beneficially own more than ten percent
of a registered class of our equity securities (referred to as "reporting
persons"), to file with the Securities and Exchange Commission
31
<PAGE>
initial reports of ownership and reports of changes in ownership of common stock
and other MGPX equity securities. Reporting persons are required by Commission
regulations to furnish us with copies of all Section 16(a) forms they file.
To our knowledge, based solely on a review of the copies of reports and
amendments thereto on Forms 3, 4 and 5 furnished to us by reporting persons
during, and with respect to, our fiscal year ended June 30, 1999, and on a
review of written representations from reporting persons that no other reports
were required to be filed for that fiscal year, all Section 16(a) filing
requirements applicable to our directors, executive officers and greater than
ten percent beneficial owners during such period were satisfied in a timely
manner, except that (i) Peter Schlesinger, Emanuel Batler, Isaac Moss (former
director) and Buddy Young (former executive officer and director) each failed to
timely file one report, and (ii) Gunther Schiff (former director) failed to file
one report.
ITEM 10. EXECUTIVE COMPENSATION.
The tables and discussion below set forth information about the
compensation awarded to, earned by or paid to our chief executive officer
(sometimes referred to in this report as the "named executive officer") during
the fiscal years ended June 30, 1999, 1998 and 1997. No executive officer
received total annual salary and bonus in excess of $100,000 during the fiscal
year ended June 30, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-------------
ANNUAL COMPENSATION SHARES
FISCAL ------------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS
- --------------------------- ------ --------- ------- ------------
<S> <C> <C> <C> <C>
Buddy Young(1)......................... 1999 $ 34,850 -- 100,000
President, chief executive 1998 $ 12,510 -- --
officer & director 1997 -- -- --
</TABLE>
- ------------------------
(1) Mr. Young resigned from all of his positions with MGPX after the end of the
1999 fiscal year on July 26, 1999, and Kenneth R. Peak was appointed on that
date as the new president and chief executive officer and a director.
EMPLOYMENT AND CONSULTING AGREEMENTS
We currently have no employment agreement with any executive officer. On
March 24, 1998, we entered into a consulting agreement with Mr. Young, pursuant
to which he served until July 26, 1999 as president, chief executive officer and
a director and was paid a total of $34,850 during the year ended June 30, 1999.
On July 26, 1999, Mr. Young resigned from all of his positions with MGPX, and he
entered into a new consulting agreement with us on July 27, 1999. Under the
terms of the new agreement, Mr. Young will serve as a consultant to MGPX through
October 31, 1999 or until our next stockholders meeting, whichever is sooner,
and will perform various administrative functions
32
<PAGE>
to help facilitate a smooth transition to new management. His agreed
compensation is $20,000 payable at the rate of $2,000 per month, with a balloon
payment of $14,000 to be paid at the completion of our next stockholders meeting
and in no event later than October 31, 1999. Under the agreement, Mr. Young will
also be permitted to purchase no fewer than 100,000 shares of common stock on
the same terms as other investors in a proposed private placement.
The board of directors appointed Kenneth R. Peak as president, chief
executive officer and a director on July 26, 1999 and approved an initial salary
for Mr. Peak in the amount of $12,500 per month.
OPTION/SAR GRANTS IN FISCAL YEAR ENDED JUNE 30, 1999
The following table sets forth certain information with respect to stock
options granted to the our chief executive officer during the fiscal year ended
June 30, 1999.
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE
---- ------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
Buddy Young 100,000(1) 100 $1.00 6/8/2002
</TABLE>
- --------------
(1) The board of directors granted these options on June 8, 1999 in
consideration of Mr. Young's services as president and chief executive
officer. The options were immediately exercisable.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
As shown in the following table, our chief executive officer did not
exercise any stock options or stock appreciation rights during the fiscal
year ended June 30, 1999, and none of the 100,000 stock options which he held
at the end of the fiscal year was in the money.
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
SHARES OPTIONS/SARS AT 6/30/99 AT 6/30/99 ($)
ACQUIRED ON VALUE -------------------------------- -------------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Buddy Young -- -- 100,000 -- -- --
</TABLE>
COMPENSATION OF DIRECTORS
Outside directors of MGPX have been paid $150 for their attendance at
each meeting of the board of directors. In the future, directors will be paid
normal and customary industry fees for their assistance in sourcing,
evaluating and closing transactions. Directors who are also officers of MGPX
receive no additional compensation for their service as a director. The board
of directors awarded
33
<PAGE>
cash compensation of $6,000 to Isaac Moss in appreciation for his services as
a director upon his resignation on July 26, 1999.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information about the beneficial ownership
of our outstanding classes of preferred stock and common stock as of August 3,
1999, by each person known to own beneficially more than 5% of each class, by
each of our directors and named executive officers (as defined in Item 10,
"Executive Compensation") and by all of our directors and executive officers as
a group. Unless otherwise indicated below, to our knowledge, all persons listed
below have sole voting and investment power with respect to their shares of
Series B preferred stock and common stock except to the extent that authority is
shared by spouses under applicable law.
As described under Item 4, "Submission of Matters to a Vote of Security
Holders," all outstanding shares of Series B preferred stock will automatically
be converted into common stock on August 16, 1999 at a rate of 30 shares of
common stock for each of the 16,792 outstanding shares of Series B preferred
stock. Since the conversion of all outstanding shares of Series B preferred
stock will occur within the next 60 days, we have calculated the percentage of
common stock beneficially owned by each of the persons in the table as if all
shares of Series B preferred stock had already been converted.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
NAME AND ADDRESS PREFERRED SHARES(2) PERCENTAGE COMMON SHARES PERCENTAGE
OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED OWNED(3) BENEFICIALLY OWNED OWNED(4)
- ------------------------ ------------------- ---------- ------------------ ----------
<S> <C> <C> <C> <C>
David Wilstein 2,000 11.96% 234,654(5) 11.65%
2080 Century Park East
Los Angeles, CA 90067
APEX Investments Fund Ltd. 3,666 21.92% 109,980(6) 5.46%
3 Trilogy Court
Paget Close
PG05 Bermuda
Richard and Joann Small 2,000 11.96% 60,000(7) 2.98%
1416 Port Washington Avenue
Ambler, PA 19002
Mark S. Laventhal 1,700 10.16% 51,000(8) 2.53%
50 Rowes Wharf
Boston, MA 02110
Joan Gold 1,200 7.17% 36,000(9) 1.79%
1016 Ridgedale Drive
Beverly Hills, CA 90210
J.H. Tromp Meesters -0- -- 112,500 7.45%
9430 Olympic Blvd.
Beverly Hills, CA 90212
Buddy Young -0- -- 120,000(10) 5.68%
</TABLE>
34
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Peter Schlesinger -0- -- -0- --
Kenneth R. Peak -0- -- -0- --
Emanuel Batler -0- -- -0- --
Directors and executive officers -0- -- -0- --
as a group (three persons)
</TABLE>
- -----------------------
(1) Unless otherwise indicated, the address of each stockholder is 17337
Ventura Blvd., #224, Encino, CA 91316.
(2) Each share of Series B preferred stock is convertible at any time by the
holder thereof into 12 shares of common stock; however, each such share
will automatically be converted into 30 shares of common stock on August
16, 1999.
(3) Based on a total of 16,792 shares of Series B preferred stock outstanding.
(4) Based on a total of 1,509,865 shares of common stock outstanding, plus
503,760 shares of common stock to be issued upon conversion of Series B
preferred stock on August 16, 1999 (treating such shares as if already
outstanding), plus, for each individual stockholder named, that number of
other shares of common stock (if any) which such person has a right to
acquire within 60 days pursuant to options, warrants, conversion privileges
or other rights.
(5) Includes 60,000 shares of common stock to be issued upon conversion of
Series B preferred stock on August 16, 1999.
(6) Includes 109,980 shares of common stock to be issued upon conversion of
Series B preferred stock on August 16, 1999.
(7) Includes 60,000 shares of common stock to be issued upon conversion of
Series B preferred stock on August 16, 1999.
(8) Includes 51,000 shares of common stock to be issued upon conversion of
Series B preferred stock on August 16, 1999.
(9) Includes 36,000 shares of common stock to be issued upon conversion of
Series B preferred stock on August 16, 1999.
(10) Includes 100,000 shares of common stock issuable upon exercise of options
granted to Mr. Young for his services as former president, chief executive
officer and director. Mr. Young resigned from all such positions on July
26, 1999.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On July 26, 1999, Kenneth R. Peak was appointed as a director of MGPX. On
the same date, MGPX and Mr. Peak entered into an agreement under which he was
also appointed as president, executive officer and secretary; provided, however,
that his appointment as an officer will terminate automatically if he does not
satisfy the following conditions by 5:00 p.m. Pacific Time on August 26, 1999:
(1) he shall see that all cumulative dividends payable with respect to our
Series B preferred stock are paid in full; (2) he shall see that holders of our
Series B preferred stock are solicited to consent to the conversion on August
16, 1999 of our Series B preferred stock at an adjusted
35
<PAGE>
conversion rate of 30 shares of common stock for each outstanding share of
Series B preferred stock, and (3) he shall raise not less than $600,000 in new
equity financing for MGPX through an exempt private placement of common stock.
To date, the first two conditions have been satisfied.
As described more fully in Item 1, "Description of Business," on February
16, 1998, when we were still operating under the name of Warner Technologies,
Inc., we entered into an asset sale agreement, effective as of December 31,
1997, with Messrs. Hathaway and Ferrari, who were then serving as our president
and executive vice president, respectively. See Note 3 to the financial
statements in Item 7 for a description of the net operating assets sold. The
cash purchase price of $650,000 was established through negotiations between our
outside directors and Messrs. Hathaway and Ferrari and was supported by an
independent valuation of the net assets by Singer Lewak Greenbaum & Goldstein
and a fairness opinion from The Mentor Group, Inc. On March 10, 1998, our
stockholders voted to approve the sale and to change the name of the company
from Warner Technologies, Inc. to MGPX Ventures, Inc. The sale of assets was
completed on March 31, 1998. We received net proceeds of $585,000 from the sale
after closing costs. Pursuant to the asset sale agreement, we also purchased
from Messrs. Hathaway and Ferrari for $1,000 all of the shares of MGPX common
stock owned by them (183,481 shares from Mr. Hathaway and 159,396 shares from
Mr. Ferrari). In addition, under the agreement, all of their options and option
rights were canceled.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
The following documents are included or incorporated by reference as
exhibits to this report:
<TABLE>
<CAPTION>
Exhibit
No. Document Description
------- -------------------------------------------------------------
<S> <C>
(2) PLAN OF PURCHASE, SALE, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR SUCCESSION
2.1 Agreement for Sale and Purchase of Assets of a Business
between MGPX, as seller, and Thomas Hathaway and Joseph
Ferrari, as buyers, dated February 16, 1998(1)
Note: The following attachments to Exhibit 2.1 will be
furnished supplementally to the Securities and Exchange
Commission upon request:
Exhibit "A" Seller's Balance Sheet and Profit and Loss
Statement for the Twelve Months Ended June 30, 1997
Exhibit "B" Seller's Quarterly Report for the Three-Month and
Six-Month Period Ended December 31, 1997
Exhibit "C" Schedule of Liabilities and Obligations of Seller
Exhibit "D" Contracts, Agreements and Commitments As of December 31, 1997
Exhibit "E" Lease of Real or Personal Property
Exhibit "F" No Change in Circumstances
Exhibit "G" General Release
Exhibit "H" Seller's Covenant Not to Compete
</TABLE>
36
<PAGE>
<TABLE>
<S> <C>
Exhibit "I" Litigation
(3) ARTICLES OF INCORPORATION AND BY-LAWS
3.1 Articles of incorporation, as amended to date(1)
3.2 By-laws(1)
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS
4.1 Facsimile of common stock certificate(1)
4.2 Facsimile of Series B preferred stock certificate(1)
4.3 Certificate of determination of Series B preferred stock(1)
(10) MATERIAL CONTRACTS
10.1 Consulting Agreement between MGPX and Buddy Young, dated March 24, 1998
(management contract)(1)
10.2 Form of Agreement between MGPX and Kenneth R. Peak, dated July 26, 1999
(management contract)
10.3 Form of Consulting Agreement between MGPX and Buddy Young, dated July 27,
1999
(23) CONSENTS OF EXPERTS AND COUNSEL
23.1 Consent of Singer Lewak Greenbaum & Goldstein LLP
(27) FINANCIAL DATA SCHEDULE
27.1 Financial Data Schedule
</TABLE>
- ---------------------
(1) Included as an exhibit to our registration statement on Form 10-SB
filed on October 16, 1998 and incorporated herein by reference.
(b) REPORTS ON FORM 8-K.
MGPX did not file any reports on Form 8-K during the quarter ended
June 30, 1999.
37
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MGPX VENTURES, INC.
Date: August 9 , 1999 By: /s/ KENNETH R. PEAK
--- --------------------------
Kenneth R. Peak, President and
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
By: /s/ PETER SCHLESINGER Chairman of the Board, Chief August 9 , 1999
--------------------------- Financial Officer and Director ---
Peter Schlesinger (Principal Financial and
Accounting Officer)
By: /s/ KENNETH R. PEAK President, Chief Executive August 9 , 1999
--------------------------- Officer, Secretary and Director ---
Kenneth R. Peak (Principal Executive Officer)
By: /s/ EMANUEL BATLER Director August 9 , 1999
--------------------------- ---
Emanuel Batler
</TABLE>
38
<PAGE>
EXHIBIT 10.2
AGREEMENT
This agreement ("Agreement") is entered into on July 26, 1999 by and
between MGPX Ventures, Inc., a Nevada corporation (the "Company"), and Kenneth
R. Peak, an individual ("Peak").
WHEREAS, on this date the Board of Directors of the Company authorized
the Company to pursue opportunities in the oil and gas industry and appointed
Peak as a Director of the Company and, effective immediately upon the execution
and delivery of this Agreement, as the President, Chief Executive Officer and
Secretary of the Company; and
WHEREAS, Buddy Young ("Young") has agreed to resign from his positions
with the Company as President, Chief Executive Officer, Secretary, and Director
effective immediately upon the execution and delivery of this Agreement,
continuing thereafter to serve as a consultant to the Company on terms to be
negotiated;
NOW, THEREFORE, the parties agree as follows:
1. APPOINTMENT. Immediately upon the execution and delivery of this
Agreement by the parties, Peak shall become the Company's President, Chief
Executive Officer and Secretary; provided, however, that Peak's appointment to
all of these positions shall terminate automatically in the event that Peak
shall not have satisfied both of the following conditions by 5:00 p.m. Pacific
Time on Thursday, August 26, 1999 (the "Deadline"):
a. CAPITAL RAISING. Peak shall raise not less than $600,000 in
new equity financing for the Company (delivered to the Company's account by the
Deadline) through an exempt private placement of the Company's common stock.
b. PREFERRED STOCK. Peak shall carry out the resolution of the
Board of Directors, adopted on this date, which provides that all cumulative
dividends payable by the Company with respect to its Series B Preferred Stock
(the "Preferred Stock") shall be paid in full, and also that the Company shall
solicit the consent of holders of the Preferred Stock to allow the Company to
convert the Preferred Stock into Common Stock at an adjusted conversion rate of
30 shares of Common Stock for each outstanding share of Preferred Stock (i.e.,
one common share for each $1.00 paid for the Preferred Stock).
2. GENERAL PROVISIONS.
a. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and the successors and assigns of the Company;
provided, however, it is understood and agreed that the services to be rendered
and the duties to be performed by Peak hereunder are of a special, unique and
personal nature and that it would be difficult or impossible to replace such
services, and by reason thereof, Peak may not assign either the benefits or the
obligations of this Agreement.
b. This Agreement is the entire agreement between the parties
with respect to the subject matter hereof and supersedes all prior and written
agreements and negotiations between the parties.
c. This Agreement may not be modified except by a written
instrument signed by the parties hereto.
<PAGE>
d. This Agreement may be executed and delivered in one or more
counterparts, and each such counterpart when executed and delivered shall be
deemed to be an original; provided, that all such counterparts shall together
constitute one and the same instrument.
e. Delivery of this Agreement by facsimile transmission shall
be deemed to create a valid and enforceable agreement.
f. This Agreement is made with reference to the laws of the
State of California and shall be governed by and construed in accordance
therewith. Any litigation concerning or to enforce the provisions of this
Agreement shall be brought in the courts of the State of California.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
THE COMPANY: PEAK:
MGPX Ventures, Inc.
By:____________________________________ _________________________________
Buddy Young, President, Chief Kenneth R. Peak
Executive Officer and Secretary
<PAGE>
I hereby resign from my positions as President, Chief Executive
Officer, Secretary and Director of MGPX Ventures, Inc. (the "Company"),
effective immediately upon the execution and delivery of that certain Agreement
by and between the Company and Kenneth R. Peak dated July 26, 1999.
Date: ____________________ __________________________________________
Buddy Young
<PAGE>
EXHIBIT 10.3
July 27, 1999
Mr. Buddy Young
17337 Ventura Blvd. Suite 224.
Encino, CA 91316
Dear Mr. Young:
This letter, when signed by both of us, will constitute an agreement
with respect to the matters set forth herein:
1. We agree that you will serve in the capacity of a
non-exclusive consultant to the Company through October 31,
1999, or until the Company's next shareholder meeting is held,
whichever is sooner.
2. Your compensation will be a total of $20,000, payable at the
rate $2,000, per month, with a balloon payment of $14,000 at
the completion of the shareholders meeting. In no event shall
the balloon payment be made later than October 31, 1999. In
addition, you will be reimbursed for any expenses incurred on
behalf of the Company. Prior approval will be required for any
expense exceeding $100.
3. As a consultant to the Company your assignments will include
assisting in the preparation and filing of all necessary
public disclosure forms, including the Company's Form 10KSB
for the year ended June 30, 1999, A Proxy Statement for the
shareholders meeting to be held prior to October 31, 1999, a
Private Placement Memorandum and Subscription Agreement for
the upcoming offerings of the Company's common stock.
4. Facilitate due diligence by Morgan, Lewis & Bockius and Arthur
Andersen.
5. Facilitate the payment of dividends owed to the preferred
shareholders, and the vote to convert their shares, in
accordance with the July 26, 199 Board of Directors
resolution.
6. Maintain the Company's California bank accounts, and make
payments as authorized by the CEO or CFO.
<PAGE>
7. Upon the request of the CEO or CFO transfer cash and Company
records to Houston office.
8. Perform such other consulting assignments as may reasonably
be requested by the CEO or CFO.
9. You will be afforded an opportunity to purchase no less than
100,000 shares of common stock at a price of 10cents a share,
under the same terms as other outside investors purchasing
shares in the upcoming private placement.
If the foregoing fully sets forth our understanding, please indicate
this by signing below.
Very truly yours,
MGPX Ventures, Inc.
By: Kenneth R. Peak
President and Chief Executive Officer
The foregoing is understood, acknowledged, accepted and agreed to:
- ---------------
BUDDY YOUNG
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
We hereby consent to the incorporation of our report, dated July 22, 1999,
included in this Form 10-KSB in the previously filed Registration Statement
of MGPX Ventures, Inc. on Form S-8 (File No. 333-84223, effective August 2,
1999.)
/s/ Singer Lewak Greenbaum & Goldstein LLP
- -------------------------------------------
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
August 9, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 466,189
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 489,889
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 489,889
<CURRENT-LIABILITIES> 78,365
<BONDS> 0
0
672
<COMMON> 60,395
<OTHER-SE> 352,457
<TOTAL-LIABILITY-AND-EQUITY> 489,889
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (107,725)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,407
<INCOME-PRETAX> (84,318)
<INCOME-TAX> 800
<INCOME-CONTINUING> (85,118)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (85,118)
<EPS-BASIC> (0.06)
<EPS-DILUTED> 0
</TABLE>
