<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
NOVEMBER 30, 1995
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________
______ TO _______________
COMMISSION FILE NUMBER 0-9147
-------------
FOUNTAIN OIL INCORPORATED
- --------------------------------------------------------------------------------
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
Delaware 91-0881481
- --------------------------------- ------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1400 Broadfield Blvd., Suite 200, Houston, Texas 77084-5163
- ------------------------------------------------ ----------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
713-492-6992
- --------------------------------------------------------------------------------
(ISSUER'S TELEPHONE NUMBER)
- --------------------------------------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT)
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
--- ---
The number of shares outstanding of issuer's common stock on November 30, 1995
was 10,834,063.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT
Yes No X
--- ---
<PAGE>
PART I - FINANCIAL INFORMATION
FOUNTAIN OIL INCORPORATED AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
Unaudited
November 30, 1995
-----------------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,541,272
Trade accounts receivable, net 66,116
Accounts receivable - affiliated entity 1,800,000
Accounts receivable, other 50,843
Inventory 17,746
Prepaid expenses 650,418
-----------
Total current assets 4,126,395
Notes receivable 530,000
Property and equipment, net 3,997,639
Oil and gas properties, net, full cost method
(including $358,321 unevaluated) 552,473
Investment in oil and gas ventures 2,360,887
-----------
TOTAL ASSETS $11,567,394
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,293,417
Accrued liabilities 345,270
Note payable 94,453
------------
Total current liabilities 2,733,140
Account payable - related party 250,214
Stockholders' Equity:
Preferred stock ---
Common stock 1,083,406
Capital in excess of par value 29,249,175
Accumulated deficit since October 31, 1988 (21,748,541)
------------
Total stockholders' equity 8,584,040
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,567,394
============
</TABLE>
See accompanying notes to unaudited consolidated condensed financial statements.
2
<PAGE>
PART I - FINANCIAL INFORMATION
FOUNTAIN OIL INCORPORATED AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Unaudited
------------------------------
Three Months Ended
NOVEMBER 30, NOVEMBER 30,
1995 1994
--------------- ------------
<S> <C> <C>
Operating Revenues:
Power unit rentals $ 1,913 $ 14,710
Equipment sales --- 75,400
Oil & gas production 34,260 ---
----------- ----------
36,173 90,110
----------- ----------
Operating Expenses:
Lease operating expense 14,414 27,164
General and administrative 1,020,061 314,022
Depreciation, depletion and amortization 75,988 241,324
Research and development --- 50,847
Geological and geophysical --- 16,477
Employee stock compensation --- 4,275
----------- ----------
1,110,463 654,109
----------- ----------
OPERATING LOSS 1,074,290 563,999
----------- ----------
Other Income:
Interest, net 47,743 309
Other income 2,697 7,321
----------- ----------
TOTAL OTHER INCOME (EXPENSE) 50,440 7,630
----------- ----------
NET LOSS $ 1,023,850 $ 556,369
----------- ----------
Weighted average number of
common shares outstanding 10,834,063 5,974,310
----------- ----------
NET LOSS PER COMMON SHARE $(0.09) $(0.09)
----------- ----------
</TABLE>
See accompanying notes to unaudited consolidated condensed financial statements.
3
<PAGE>
PART I - FINANCIAL INFORMATION
FOUNTAIN OIL INCORPORATED AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Unaudited
----------------------------
Three Months Ended
NOVEMBER 30, NOVEMBER 30,
1995 1994
------------- -------------
<S> <C> <C>
Operating activities:
Net loss $(1,023,850) $ (556,369)
Depreciation, depletion and amortization 75,988 241,324
Accumulated currency translations --- (1,053)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable (72,939) 107,795
Decrease (increase) in inventory 200 (21,086)
Increase in prepaid expenses (286,570) (125,152)
Decrease in accounts payable (217,681) (93,481)
Increase (decrease) in accrued liabilities (94,009) 54,955
----------- ----------
NET CASH USED BY OPERATING ACTIVITIES (1,618,861) (393,067)
----------- ----------
Investing activities:
Capital expenditures (736,778) (365,213)
Investment in oil and gas ventures (1,002,682) ---
----------- ----------
NET CASH USED IN INVESTING ACTIVITIES (1,739,460) (365,213)
----------- ----------
Financing activities:
Cash provided by stock sale/warrant exercise, net --- 4,275
Payments on notes payable (10,625) ---
Payments on account payable - related party (3,580) ---
Proceeds from issuance of note payable 83,828 ---
Proceeds from issuance of account payable -
related party 38,325 ---
----------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 107,948 4,275
----------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,250,373) (754,005)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,791,645 1,520,061
----------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,541,272 $ 766,056
----------- ----------
</TABLE>
See accompanying notes to unaudited consolidated condensed financial statements.
4
<PAGE>
PART I - FINANCIAL INFORMATION
FOUNTAIN OIL INCORPORATED AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED NOVEMBER 30, 1995 (UNAUDITED)
(1) Basis of Preparation and Presentation
--------------------------------------
The consolidated condensed financial statements of Fountain Oil
Incorporated and Subsidiaries (collectively the "Company") included herein
have been prepared by the Company, without audit. Certain information and
footnote disclosures normally included in the financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted, since the Company believes that the disclosures
included are adequate to make the information presented not misleading. In
the opinion of management, the consolidated condensed financial statements
include all adjustments necessary to present fairly the financial position
and results of operations as of the dates and for the periods presented.
These consolidated condensed financial statements should be read in
conjunction with the financial statements and the notes thereto included in
the annual report on Form 10-KSB for the fiscal year ended August 31, 1995
filed with the Securities and Exchange Commission.
(2) Going Concern Assumption
--------------------------
The Company has adopted an aggressive growth strategy which, if fully
implemented, will require a substantial capital commitment during fiscal
1996. Because the Company has incurred recurring operating losses and its
current operations are not generating cash flows, the ability of the
Company to continue as a going concern and to pursue this growth strategy
successfully is highly dependent upon generating funds from external
sources.
Without sufficient cash from external sources, the Company's ability to
arrange financing for its oil and gas ventures and continue as a going
concern is doubtful. However, the Company's management believes that it
will be able to access external sources of funds through a combination of
equity financing by the Company and debt financing by the Company or the
joint ventures or other entities that are developing projects. See Note 9.
The consolidated financial statements do not give effect to any impairment
of its investments in oil and gas ventures or other adjustments which would
be necessary should the Company be unable to obtain sufficient funds from
external sources and continue as a going concern.
As of November 30, 1995, the Company had approximately $1,541,000 in cash
and cash equivalents and had accounts payable of approximately $2,293,000.
The Company faces other cash demands, as well. General and administrative
expenses, which are primarily cash items, have been requiring cash flows in
excess of $1,000,000 a quarter, and the Company has been making substantial
cash investments in oil and gas ventures and properties. In the event of a
cash shortage, management believes that through a deferral
5
<PAGE>
of the salaries of most of the Company's executive officers and limiting
the use of external services the Company could reduce the cash flows
required to fund general and administrative expenses to approximately
$600,000 per quarter. Similarly, management believes that it could also
reduce its cash investment in oil and gas ventures and properties to
approximately $500,000 per quarter while still maintaining some progress in
the projects. There can be no assurances, however, that the Company would
so reduce the cash flows required to fund its general and administrative
expenses and investment in oil and gas ventures and properties. Operations
are not expected to generate significant revenue in fiscal 1996. Thus,
unless the Company is able to arrange debt or equity financing or otherwise
to generate sufficient cash in the near future, the Company may be required
to scale back significantly or suspend its activities and may not be able
to meet its obligations as they come due. While the Company's management
believes that it will be able to access external sources of funds through a
combination of equity financing by the Company and debt financing by the
Company or the joint ventures or other entities that are developing
projects, no assurances can be given that the Company will be able to
arrange the necessary financing or otherwise generate sufficient cash to
fund its activities or meet its obligations.
(3) Accounts Receivable - Affiliated Entity
---------------------------------------
Upon the acquisition of Gastron International Limited, the Company recorded
a receivable in the amount of $1,800,000 from Mostransgas Gas Transmission
and Supply Enterprise, a Russian joint stock company ("Mostransgas"). See
Note 4. This receivable represents amounts due from Mostransgas to
reimburse the Company for costs incurred in connection with the acquisition
of two drilling rigs and related equipment which will represent a joint
capital contribution by the Company and Mostransgas to a Russian joint
stock company in which the Company acquired an interest through its
acquisition of Gastron International Limited. The Company's management
believes Mostransgas will repay to the Company through the equipment
supplier the amounts advanced by the Company on its behalf within seven
days of the delivery in Russia of the drilling rigs and equipment being
shipped from the United States.
The Company will have to pay the outstanding trade payables for the
drilling rigs and related equipment before shipping them to Russia.
Currently, the Company does not have sufficient liquidity to pay such
outstanding trade payables. Therefore, the collectibility of the account
receivable from Mostransgas is dependent upon, among other things, the
Company obtaining the necessary funds to satisfy this obligation.
(4) Acquisition of Assets
---------------------
Effective October 19, 1995, the Company acquired from Ribalta Holdings,
Inc. ("Ribalta"), the entire issued share capital of Gastron International
Limited, a British Virgin Islands corporation ("Gastron"), for nominal
consideration plus additional contingent consideration payable upon
satisfaction of various conditions. The principal assets of Gastron, which
has not yet actively engaged in business, are (i) a 31% ownership interest
in Intergas, a closed private joint stock company incorporated in Russia
("Intergas"), which has rights to develop the 12,500 acre Maykop gas
condensate field (the "Maykop Field") in the Republic of Adygea, Russian
Federation, (ii) an interest in
6
<PAGE>
two drilling rigs and related equipment undergoing testing and
certification, and (iii) an account receivable from an affiliated entity.
See Note 3.
The assets acquired and liabilities assumed in conjunction with this
acquisition were as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash and cash equivalents $ 2,846
Accounts receivable - affiliated entity 1,800,000
Property and equipment 2,731,818
----------
$4,534,664
==========
Accounts payable $1,844,195
Accrued liabilities 25,000
Account payable - related party 215,469
Notes payable - Fountain Oil Incorporated 2,450,000
----------
$4,534,664
==========
</TABLE>
(5) Account Payable - Related Party
-------------------------------
In conjunction with the Gastron acquisition, the Company assumed an account
payable to an affiliate of Gastron.
(6) Net Loss Per Common Share
-------------------------
Net loss per common share for the periods presented is based on the
weighted average number of common shares outstanding.
(7) Supplemental Cash Flow Information
----------------------------------
The assets acquired and liabilities assumed in conjunction with the Gastron
acquisition were purchased for $1 plus additional contingent consideration
payable upon satisfaction of various conditions. See Note 4. Thus, these
balances have been excluded from the Consolidated Condensed Statement of
Cash Flows.
(8) Commitments and Contingencies
-----------------------------
The Company has outstanding obligations with respect to the acquisition and
development of oil and gas projects it is pursuing that require or may
require the Company to expend funds and to issue shares of its Common
Stock. Most of these obligations are subject to the satisfaction of
various conditions related to, among other things, the formalization of
project relationships and achievement of specified project performance
standards. At November 30, 1995, the Company had unconditional obligations
regarding the development of oil and gas projects amounting to
approximately $70,000. Commitments relating to acquisitions conditioned on
the formalization of project relationships, project performance and other
matters were $1,500,000 in cash and 1,550,000 common shares. As the
Company undertakes additional projects and develops current projects,
significant additional obligations are expected to be incurred.
7
<PAGE>
(9) Subsequent Events
------------------
Subsequent to November 30, 1995, the Company initiated an offering at par
of up to $7,000,000 principal amount of convertible subordinated debentures
(the "Debentures") solely to prospective purchasers who are not U.S.
persons. The Company does not contemplate either issuing any Debentures
unless at least $3,500,000 principal amount of the Debentures are issued
and sold or extending the offering of the Debentures beyond February 15,
1996. No assurances can be given that any of these Debentures will be
issued and sold.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity, Capital Resources, and Changes in Financial Condition
----------------------------------------------------------------
Effective October 19, 1995, the Company acquired the entire issued
share capital of Gastron International Limited, a British Virgin Islands
corporation ("Gastron"). While this acquisition has involved the payment of only
nominal consideration thus far with additional contingent consideration payable
only upon satisfaction of various conditions, the Gastron acquisition has had a
significant effect on the liquidity, capital resources, and financial condition
of the Company. The principal assets of Gastron on the date of acquisition were
(i) a 31% ownership interest in Intergas, a closed private joint stock company
incorporated in Russia having rights to develop the 12,500 acre Maykop gas
condensate field in the Republic of Adygea, Russian Federation, (ii) an account
receivable from an affiliated entity of $1,800,000, and (iii) an interest in two
drilling rigs and related equipment undergoing testing and certification
recorded by the Company at approximately $2,732,000. At the time of acquisition,
Gastron had current liabilities of approximately $2,085,000. See Notes 3, 4, 5
and 7 to the Notes to Unaudited Consolidated Condensed Financial Statements.
As of November 30, 1995, the Company had current assets of $4,126,395,
of which $1,541,272 was in the form of cash and cash equivalents, while as of
August 31, 1995 the Company had current assets of $5,290,601, of which
$4,791,645 was in the form of cash and cash equivalents. The $1,164,206
reduction in current assets during the quarter ended November 30, 1995, was
attributable primarily to (i) the net operating loss reflecting primarily
general and administrative expenses and only nominal revenue during the first
quarter of fiscal 1996, (ii) a cash investment during the quarter of
approximately $1,003,000 in oil and gas ventures, and (iii) the payment of
approximately $232,000 in accounts payable and accrued liabilities not
associated with the Gastron acquisition, partially offset by a $1,800,000
account receivable from an affiliated entity acquired in the Gastron
transaction. See Note 3 to the Notes to Unaudited Consolidated Condensed
Financial Statements.
As of November 30, 1995, the Company had current liabilities of
$2,733,140, as compared to current liabilities of $1,102,432 at August 31, 1995.
The increase of approximately $1,631,000 in current liabilities is attributable
primarily to the Company's assumption of approximately $2,085,000 in current
liabilities in connection with the Gastron acquisition, partially offset by the
reduction in accounts payable and accrued liabilities not associated with the
Gastron acquisition.
8
<PAGE>
The Company's working capital of approximately $4,188,000 at August
31, 1995, dropped to approximately $1,393,000 at November 30, 1995 as a result
of the changes in current assets and current liabilities described above.
Certain components of working capital, principally the $1,800,000 account
receivable from an affiliated entity and $650,418 in prepaid expenses, may not
be monetized as early as the current liabilities become due. The Company intends
to address the condition of its working capital by accessing external sources of
funds through a combination of equity and debt financing by the Company. There
can be no assurance that the Company will be able to arrange the necessary
financing or that such financing will be available on terms that are acceptable
to the Company. Subsequent to November 30, 1995, the Company initiated an
offering at par of up to $7,000,000 principal amount of convertible subordinated
debentures (the "Debentures") solely to prospective purchasers who are not U.S.
persons. The Company does not contemplate either issuing any Debentures unless
at least $3,500,000 principal amount of the Debentures are issued and sold or
extending the offering of the Debentures beyond February 15, 1996. No assurances
can be given that any of these Debentures will be issued and sold.
The Company's property and equipment, net, increased from $529,831 at
August 31, 1995, to $3,997,639 at November 30, 1995, primarily as a result of
the acquisition of an interest in drilling rigs and related equipment in
connection with the Gastron transaction.
Notes receivable declined from $2,980,000 at August 31, 1995, to
$530,000 at November 30, 1995, upon elimination in consolidation of $2,450,000
that had been payable by Gastron to the Company, as a result of the Company's
acquisition of Gastron.
The Company is continuing its activities with respect to four oil and
gas ventures in Eastern Europe in which the Company has or expects to acquire an
interest. During the quarter ended November 30, 1995, approximately $1,003,000
expended with respect to these ventures was capitalized, increasing investment
in oil and gas ventures to $2,360,887.
With respect to the Maykop Field, Republic of Adygea, Russian
Federation, the Company is discussing with Mostransgas Gas Transmission and
Supply Enterprise, a Russian joint stock company ("Mostransgas"), and others
marketing arrangements for the Maykop Field's production. Mostransgas is a co-
owner with the Company of the entity holding rights to develop the Maykop Field
and is an affiliate of Gasprom, the largest gas distribution group in Russia.
Mostransgas has indicated that it is unable at the present time to affirm its
previously announced agreement in principle to purchase all gas produced from
the field at international market prices. The Company now expects to ship the
drilling rigs and related equipment in which it has an interest to Russia for
use in the Maykop project after clarification of such marketing arrangements to
the Company's satisfaction. The initial phase of the development program of the
Maykop Field would commence following the arrival of the rigs and equipment in
Adygea. See Notes 3 and 4 to the Notes to Unaudited Consolidated Condensed
Financial Statements.
A joint venture agreement with Albpetrol, the Albanian national oil
company, to develop the Gorischt-Kocul Field in Albania has been negotiated, and
an application for a production license filed on behalf of the joint venture is
pending before the Albanian Ministry of Mines and Energy. Following the issuance
of a license by the Ministry, the joint venture agreement and license would be
submitted to the Council of Ministers of Albania, which must give its approval
before the initial phase of the project can begin. The Company presently expects
the necessary license and approval by the third quarter of fiscal 1996.
9
<PAGE>
A joint venture agreement with Ukrnafta, the Ukraine national oil
company ("Ukrnafta"), for the development of the Boryslaw Field in Western
Ukraine is being negotiated. After a joint venture company is registered in
Ukraine, a production license must be obtained before development activities
commence. The Company presently anticipates that such registration will be
effected and license received during the second half of fiscal 1996.
The Company has negotiated an agreement to acquire 80% of the
outstanding stock of UK-RAN Corporation ("UK-RAN"), and execution awaits the
approval by the Company's Board of Directors and negotiation of an acceptable
shareholders' agreement with the holders of the other 20% of UK-RAN's stock. The
Company hopes to be in a position to complete its acquisition of the UK-RAN
stock by mid-February, 1996. UK-RAN, in turn, owns 45% of the equity of Kashtan
Petroleum, Ltd., a Ukrainian joint venture formed to workover and develop the
Lelyaki Field in the Pryluki region of Central Ukraine, with Ukrnafta holding
the other 55%. The joint venture has been registered, and its application for a
production license is pending. The Company currently expects the license to be
granted during the first quarter of calendar 1996 and development activities in
the Lelyaki Field to commence in the spring.
While the discussion of various events and their timing in the
preceeding four paragraphs represents management's assessment at the present
time, no assurances can be given regarding the occurrence or timing of any of
these events.
The Company has adopted an aggressive growth strategy which, if fully
implemented, will require substantial capital commitments during fiscal 1996.
Developing the oil and gas projects in which the Company has acquired or expects
to acquire an interest is expected by the Company to require a net cash outlay
from the Company of approximately $12 million from January 1996 through the end
of fiscal 1996. This estimate is based upon the Company's expectations regarding
various projects indicated above, and no assurance can be given that those
expectations will be met. This estimate represents a significant decrease from
the Company's estimate of such expenditures made as of the beginning of fiscal
1996, reflecting primarily slippage in the expected timing of anticipated
events. The Company has some flexibility in postponing or reducing the fiscal
1996 cash outlay by revising project programs or delaying specific activities.
The Company anticipates financing the net development costs of its oil
and gas projects, as well as the Company's current operating expenses, through a
combination of equity financing by the Company and debt financings either by the
Company or by the joint ventures or other entities that have the development
rights to such projects. Debt financing will be sought both from international
development agencies, such as the European Bank of Reconstruction and
Development and the United States Overseas Private Investment Corporation, and
conventional lenders. The consolidated financial statements have been prepared
under the assumption of a going concern. Failure of the Company to arrange such
debt and equity financing on reasonable terms would have a material adverse
effect on the results of operations, financial condition, cash flows, and
prospects of the Company and ultimately its ability to continue as a going
concern.
As of November 30, 1995, the Company had approximately $1,541,000 in
cash and cash equivalents and had accounts payable of approximately $2,293,000.
The Company faces other cash demands, as well. General and administrative
expenses, which are primarily cash items, have been requiring cash flows in
excess of $1,000,000 a quarter, and the Company has been making substantial cash
investments in oil and gas ventures and properties. In the event of a
10
<PAGE>
cash shortage, management believes that through a deferral of the salaries of
most of the Company's executive officers and limiting the use of external
services the Company could reduce the cash flows required to fund general and
administrative expenses to approximately $600,000 per quarter. Similarly,
management believes that it could also reduce its cash investment in oil and gas
ventures and properties to approximately $500,000 per quarter while still
maintaining some progress in the projects. There can be no assurances, however,
that the Company would so reduce the cash flows required to fund its general and
administrative expenses and investment in oil and gas ventures and properties.
Operations are not expected to generate significant revenue in fiscal 1996.
Thus, unless the Company is able to arrange debt or equity financing or
otherwise to generate sufficient cash in the near future, the Company may be
required to scale back significantly or suspend its activities and may not be
able to meet its obligations as they come due. While the Company's management
believes that it will be able to access external sources of funds through a
combination of equity financing by the Company and debt financing by the Company
or the joint ventures or other entities that are developing projects, no
assurances can be given that the Company will be able to arrange the necessary
financing or otherwise generate sufficient cash to fund its activities or meet
its obligations as discussed in the preceding two paragraphs.
Subsequent to November 30, 1995, the Company initiated an offering at
par of up to $7,000,000 principal amount of convertible subordinated debentures
(the "Debentures") solely to prospective purchasers who are not U.S. persons.
The Company does not contemplate either issuing any Debentures unless at least
$3,500,000 principal amount of the Debentures are issued and sold or extending
the offering of the Debentures beyond February 15, 1996. No assurances can be
given that any of these Debentures will be issued and sold.
The Company has outstanding obligations with respect to the
acquisition and development of oil and gas projects it is pursuing that require
or may require the Company to expend funds and to issue shares of its Common
Stock. Most of these obligations are subject to satisfaction of various
conditions related to, among other things, the formalization of project
relationships and achievement of specified project performance standards. At
November 30, 1995, the Company had unconditional obligations regarding the
development of oil and gas projects amounting to approximately $70,000.
Commitments on that date relating to acquisitions conditioned on the
formalization of project relationships, project performance, and other matters
were $1,500,000 and 1,550,000 shares of Common Stock. As the Company undertakes
additional projects and develops current projects, significant additional
commitments are expected to be incurred.
Results of Operations
---------------------
The Company recorded operating revenue of $36,173 during the quarter
ended November 30, 1995, as compared with operating revenue of $90,110 for the
same period last year. The revenue in the current quarter is attributable
primarily to a modest amount of oil and gas production. Effective September 1,
1995, Neutrino Resources, Inc. acquired one-half of the shares of a previously
wholly-owned Canadian subsidiary of the Company in exchange for a 10% working
interest in the Inverness unit #1 of the Inverness field in the Swan Hills
producing area in Alberta, Canada. The revenue reflects the Company's effective
5% interest in the approximately 450 barrels per day of oil production from the
Inverness Field, as well as the Company's 37.5% interest in approximately
140,000 cubic feet per day of gas production from a well in the Rocksprings
field in West Texas which commenced production during November 1995. Revenue
during the quarter ended November 30, 1994, arose exclusively from the sale and
rental of
11
<PAGE>
equipment related to the Company's electrically enhanced oil recovery technology
(the "EEOR Technology"). Only $1,913 of the revenue for the current period
related to the EEOR Technology.
General and administrative expense increased from $314,022 to
$1,020,061 from the November 1994 quarter to the November 1995 quarter. This
increase reflects the build-up of an organization and infrastructure for the
Company's oil and gas activities.
Depreciation, depletion, and amortization expense dropped from
$241,324 in the quarter ended November 30, 1994, to $75,988 for the quarter
ended November 30, 1995. This reduction is attributable primarily to the
recognition at August 31, 1995, of the impairment of intangible assets on which
amortization had been charged at the rate of approximately $223,000 per quarter
during fiscal 1995.
No research and development expense was recorded during the quarter
ended November 30, 1995. Research and development expense of $50,847 related to
the EEOR Technology was incurred during the quarter ended November 30, 1994.
Subject to the availability of funding, the Company anticipates expending during
the balance of fiscal 1996 approximately $425,000 on research and development
activities related to advancing the EEOR Technology from a late
development/early commercial stage to a fully commercial status.
The operating loss for the first quarter of fiscal 1996 was
$1,074,290, as compared to an operating loss of $563,999 for the first quarter
of fiscal 1995. The increased loss is attributable primarily to increased
general and administrative expense, partially offset by lower depreciation,
depletion, and amortization expense.
Interest income was higher in the quarter ended November 30, 1995,
than in the year earlier quarter, reflecting higher cash and cash equivalent
average balances in the current period. Cash balances were reduced considerably
during the quarter ended November 30, 1995, and the prospects for net interest
income during the balance of fiscal 1996 relate to the Company's success in
arranging equity financing.
12
<PAGE>
PART II - OTHER INFORMATION
FOUNTAIN OIL INCORPORATED AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2(1) Agreement Relating to the Sale and Purchase of All the Issued
Share Capital of Gastron International Limited dated August 10,
1995, by and among Ribalta Holdings, Inc. as Vendor, and Fountain
Oil Incorporated as Purchaser, and John Richard Tate as
Warrantor (Incorporated herein by reference from October 19,
1995 Form 8-K as amended by Form 8-K/A and Form 8-K/A-2, filed
January 2, 1996 and January 16, 1996, respectively).
2(2) Supplemental Agreement Relating to the Sale and Purchase of All
the Issued Share Capital of Gastron International Limited dated
November 3, 1995, by and among Ribalta Holdings, Inc. as Vendor,
and Fountain Oil Incorporated as Purchaser, and John Richard Tate
as Warrantor (Incorporated herein by reference from October 19,
1995 Form 8-K as amended by Form 8-K/A and Form 8-K/A-2, filed
January 2, 1996 and January 16, 1996, respectively).
99(1) Fountain Oil Incorporated and Subsidiaries Amended Unaudited Pro
Forma Consolidated Balance Sheet as of August 31, 1995
(Incorporated herein by reference from October 19, 1995 Form 8-K
as amended by Form 8-K/A and Form 8-K/A-2, filed January 2, 1996
and January 16, 1996, respectively).
(b) Reports on Form 8-K
The Company filed a Form 8-K (Item 2. Acquisition or Disposition of
Assets, and Item 7. Financial Statements and Exhibits) on November 3,
1995 reporting the acquisition of Gastron International Limited
effective October 19, 1995. The Company then filed a Form 8-K/A on
January 2, 1996 amending Items 2 and 7 and presenting an unaudited pro
forma consolidated balance sheet as of August 31, 1995, prepared on a
basis assuming said acquisition was consummated on August 31, 1995. On
January 16, 1996, the Company filed a Form 8-K/A-2 amending Items 2
and 7 and presenting an amended unaudited pro forma consolidated
balance sheet as of August 31, 1995, prepared on a basis assuming said
acquisition was consummated on August 31, 1995
13
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FOUNTAIN OIL INCORPORATED
Date: January 12, 1996 By: /s/ Arnfin Haavik
------------------------------
Arnfin Haavik
Chief Financial Officer
14
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
FILED WITH
EXHIBIT THIS
NUMBER EXHIBIT REPORT
- ------- -------- ------------
<C> <S> <C>
2(1) Agreement Relating to the Sale and Purchase of All
the Issued Share Capital of Gastron International
Limited dated August 10, 1995, by and among Ribalta
Holdings, Inc. as Vendor, and Fountain Oil
Incorporated as Purchaser, and John Richard Tate as
Warrantor (Incorporated herein by reference from
October 19, 1995 Form 8-K as amended by Form 8-K/A
and Form 8-K/A-2, filed January 2, 1996 and January
16, 1996, respectively).
2(2) Supplemental Agreement Relating to the Sale and
Purchase of All the Issued Share Capital of Gastron
International Limited dated November 3, 1995, by
and among Ribalta Holdings, Inc. as Vendor, and
Fountain Oil Incorporated as Purchaser, and John
Richard Tate as Warrantor (Incorporated herein by
reference from October 19, 1995 Form 8-K as amended
by Form 8-K/A and Form 8-K/A-2, filed January 2,
1996 and January 16, 1996, respectively).
99(1) Fountain Oil Incorporated and Subsidiaries Amended
Unaudited Pro Forma Consolidated Balance Sheet as
of August 31, 1995 (Incorporated herein by
reference from October 19, 1995 Form 8-K as amended
by Form 8-K/A and Form 8-K/A-2, filed January 2,
1996 and January 16, 1996, respectively).
</TABLE>
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> NOV-30-1995
<CASH> 1,541,272
<SECURITIES> 0
<RECEIVABLES> 171,340
<ALLOWANCES> 105,224
<INVENTORY> 17,746
<CURRENT-ASSETS> 4,126,395
<PP&E> 4,548,431
<DEPRECIATION> 550,792
<TOTAL-ASSETS> 11,567,394
<CURRENT-LIABILITIES> 2,733,140
<BONDS> 0
<COMMON> 1,083,406
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 11,567,394
<SALES> 0
<TOTAL-REVENUES> 36,173
<CGS> 0
<TOTAL-COSTS> 14,414
<OTHER-EXPENSES> 75,988
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,004
<INCOME-PRETAX> (1,074,290)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,074,290)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,023,850)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> 0
</TABLE>
