SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2000.
Commission File Number 0-30472
PIONEER OIL AND GAS
(Name of small business issuer as specified in its charter)
Utah 87-0365907
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1206 West South Jordan Parkway, Unit B
South Jordan, Utah 84095-4551
(Address of principal executive offices)
(801) 566-3000
(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
(Par Value $.001 Per Share)
Indicate by check mark whether the issuer (1) has 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____
Indicate by check mark whether the issuer has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act
after the distribution of securities under a plan confirmed by a court. Yes X No
__
The issuer's revenues for its most recent fiscal year were $1,206,309.
The aggregate market value on September 30th, 2000, of common shares held
by non-affiliates was approximately $836,097 based on the average of the closing
bid and asked prices of the registrant's common shares on such date, as quoted
by the National Quotation Bureau.
As of September 30th, 2000, the issuer had 8,135,018 shares of its
$0.001 par value common stock issued and outstanding.
Transitional Small Business Issuer Disclosure Format Yes ____ No X
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SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
Except for the historical information contained herein, the matters
discussed in this 10KSB are forward-looking statements which involve risks and
uncertainties, including but not limited to economic, competitive, political,
regulatory and governmental factors affecting the company's revenues,
operations, markets and prices, properties and other factors discussed in the
Company's various filings with the Securities and Exchange Commission.
PART I
ITEM 1 - BUSINESS
HISTORY AND OVERVIEW
Pioneer Oil and Gas (the "Company") was organized on October 16, 1980
under the laws of the State of Utah. The Company's principal place of business
is located at 1206 West South Jordan Parkway, Unit B, South Jordan, Utah
84095-4551. The Company's telephone number is (801) 566-3000 and the Company's
fax number is (801) 446-5500. The Company has primarily been engaged in the
acquisition and exploration of oil and gas properties in Utah, Wyoming, Colorado
and Nevada.
The Company filed a Chapter 11 bankruptcy petition on February 19, 1997
and filed an Amended Plan of Reorganization (the "Plan") on June 11, 1998. The
United States Bankruptcy Court for the District of Utah, Central Division (the
"Court") entered an order approving the Plan on August 5, 1998. The Order that
granted the final decree was entered into on November 6, 1998. Twenty days after
the Order was mailed on November 26, 1998, the Company emerged from bankruptcy.
Prior to the Plan's implementation, the Company in June of 1998
effected a 10 for 1 reverse stock split of the Company's common shares to allow
the Company to raise capital from the sale of new shares to existing
shareholders. The Plan implemented by the Company and approved by the Court
combined the sale of some of the Company's assets along with the sale of its
common shares to existing shareholders. The capital raised by the Company was
used to pay unsecured creditors 100% of the first $500 of any unsecured
creditor's claim plus approximately 5.0% of the claim above $500.00. The
Company's principal secured creditor Zions Bank (the "Bank") agreed to the Plan
based on the Bank being repaid the full amount owed by the Company to the Bank
by December 1999. In September of 1999 the Company completed the sale of several
of its oil and gas assets and retired all the debt owed the Bank.
<PAGE>
RECENT DEVELOPMENTS:
Since September 1999, the Company has been focusing on obtaining
prospects for the exploration of oil and gas and continuing the operations of
its current producing oil and gas properties. During the last fiscal year ended
September 30th, 2000, the Company was successful in selling one of its prospects
in Johnson County, Wyoming. The prospect sold was a coal bed methane prospect
containing 9,487.96 acres of federal and state oil and gas leases. The Company
retained on the sale a 9.375% interest in the 9,487.96 acres in Johnson County,
Wyoming.
The Company is also attempting to sell an oil and gas prospect in the
Northwest Sheldon Dome Field in Fremont County, Wyoming, a coal bed methane
prospect in Carbon County, Wyoming and an oil prospect in Nye County, Nevada.
During the latest fiscal year the Company has returned one well to production
and expended over $100,000 in the reworking of another well.
The Company is currently investigating other areas for the acquisition
of oil and gas leases for further development by the Company. The Company
operates in a highly competitive industry wherein many companies are competing
for the same finite resources as the Company.
THE BUSINESS
The Company has focused its efforts over the years in acquiring oil and
gas properties from other companies selling producing wells and in acquiring new
oil and gas leases for the purpose of exploring for oil and gas. Leases have
also been acquired over the years for the purpose of reselling them at a profit
to other oil and gas companies.
Most of the Company's present production from oil and gas properties
was acquired from large oil companies selling properties they considered to be
marginal producers. The Company has found that it can operate these properties
at a profit. Presently, the Company operates 9 producing oil and gas wells in
Utah and Wyoming.
The Company also owns an interest in several non-operated oil and gas
wells and overriding royalty interests in oil and gas wells located in Utah,
Colorado, and Wyoming. An overriding royalty interest, is an interest in a well
that receives a percentage of the production from a well without paying any
operation expenses.
The Company over the last 3 years has focused most of its exploration
efforts in drilling exploratory wells in Wyoming and Nevada. Prior to drilling
an exploratory well a geological review of the prospective area is made by the
Company's staff to determine the potential for oil and gas. If an area is
determined to have promise the Company will attempt to acquire oil and gas
leases over the prospective area. The Company will then acquire geophysical data
(generally seismic and gravity data) to further evaluate the area. After the
evaluation of the geophysical data, if the area appears to contain significant
<PAGE>
accumulations of oil and gas in the Company's opinion for the area, the Company
will market a drilling program to outside investors covering the Company's
leases. Significant accumulations cannot be quantified because it depends on
many factors such as how much it costs to drill and complete wells in a certain
area, how close the wells are to pipelines, what the price of oil or gas is, how
accessible the area is, whether the project is a developmental or wildcat
project, what the cost of oil and gas leases are in an area, the type of return
investors are seeking at that time in the different exploration areas, and many
other geological, geophysical and other considerations.
When the Company markets a drilling program its sells a portion of its
oil and gas leases over the prospect area along with obtaining a drilling
commitment from the parties purchasing the leases to drill a well on the
prospect area. A drilling program will generally allow the Company to recoup its
investment in the area with the Company also retaining an ongoing interest in
new wells to be drilled in the area.
The Company markets its drilling programs to other industry partners.
Drilling programs have been marketed by placing ads in industry journals,
attending trade shows and by traveling to the office of prospective partners. In
the past, the Company has sold drilling programs to major oil companies and
large independents and occasionally to individuals.
Leases acquired for resale have been acquired in areas determined to be
prospective by the Company's staff. An area is determined to be prospective
based on a geological review of the area, drilling in the area and review of the
Company's geophysical data if available. Usually resale leases are acquired for
the purpose of selling at a profit along with the Company retaining an
overriding royalty interest in the leases sold.
COMPETITION
The oil and gas business is highly competitive. The Company competes
against numerous other companies, both major and independents, many with greater
financial resources and larger staffs than those available to the Company. In
the area that the Company competes there are over 100 competitors with no one
competitor dominating the area. The Company believes it can successfully compete
against other companies by focusing its efforts in Utah, Colorado, Wyoming and
Nevada and by pursuing oil and gas prospects that it develops internally with
its own staff. The Company has also been able to successfully compete in the
past for leases in areas that it has accumulated geological and geophysical
data.
MARKETABILITY
The products sold by the Company, natural gas and crude oil, are
commodities desired by many companies and the Company is frequently contacted
regarding the sale of its products. The Company sells all of its oil on 30 day
contracts to companies willing to pay the highest price. Although, at anytime
the Company may be selling 10% or more of its crude oil to one purchaser, such a
purchaser is not material to the Company since if that purchaser fails to
purchase the Company's oil for any reason the Company can readily sell the oil
to another party at a price close to what was paid by the former purchaser.
Presently, the marketability of the Company's crude oil has not posed a
problem for the Company. Crude oil can be easily sold wherever it is produced in
the states that the Company operates subject to the transportation cost. The
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crude oil produced by the Company is transported either by trucking or pipeline.
On the other hand, natural gas can be more difficult to sell since
transportation requires a pipeline. In the areas that the Company is presently
pursuing new drilling activity for natural gas, other companies have been
delayed up to a year because of the unavailability of a pipeline. No assurance
can be given that natural gas wells drilled by the Company will be placed on
line within a year after the well is drilled and completed.
BUSINESS RISKS
Oil and gas exploration and drilling involves a high degree of risk.
Oil and gas prices are subject to fluctuations and, as a consequence, no
assurance can be given that oil and gas prices will decrease, increase or remain
stable. There is no assurance that wells drilled on behalf of the Company will
obtain production or that even if production is obtained, such production will
allow the recovery of all or any part of the investment made by the Company in a
well.
There are other risks inherent in the oil and gas industry that are
encountered in drilling, completing, and producing oil and gas wells. These
risks include unusual or unexpected formations, pressures or other conditions,
blowouts and environmental pollution. The Company may incur losses due to
environmental hazards against which it cannot insure or which it elects not to
insure against because of high premium costs or other reasons. Consequently,
substantial uninsured liabilities to third parties may arise, the payment of
which could result in significant losses to the Company.
The Company carries comprehensive general liability in the amount of
$5,000,000 with a financially sound and reputable insurance company and covers
such risks that are usually carried by companies engaged in the same or a
similar business and similarly situated. However, the Company usually does not
insure against environmental hazards such as blow out of wells or environmental
hazards in a prior chain of title. The cost of such insurance in many cases is
prohibitive. These types of risks are extraordinary events and are not generally
covered under a normal liability insurance policy for an oil and gas company.
Governmental regulation is a significant business risk of an oil and
gas company because the industry becomes more regulated with time. The Company
is subject to federal, state and local laws, regulations and ordinances relating
to the production and sale of oil and gas. Some of the laws that the Company is
subject to include the Clean Air Act, the Clean Water Act, and Endangered
Species Act. For example, coal bed methane wells are being highly regulated for
disposing produced fresh water on the surface. The EPA is requiring that the
fresh water meet more stringent standards than before, which ultimately may
require the water be injected underground. Reinjecting the water will increase
the cost of production and in some cases make the drilling of wells
uneconomical.
Environmental regulations and taxes imposed by state governments in a
jurisdiction wherein producing oil and gas properties are located impose a
significant burden on the cost of production. Severance and ad valorem taxes in
Wyoming can amount to approximately 14% of the Company's gross production and if
the property is located on a Reservation the total tax burden by governmental
entities can amount to as much as 22% of the gross production. Governmental
regulation may also delay drilling in areas that have endangered species. Delays
in drilling in the past have not imposed a significant cost to the Company,
however, no assurance can be given that in future the delays will not be more
expensive.
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In the oil and gas industry there is always a possibility that there
will be a shortage of drilling rigs, casing pipe or other material not being
available, when needed for drilling, completing or operating wells. To date, the
Company has not encountered any significant difficulties in the areas it has
operated or intends to operate in the future, however, no assurance can be given
that this condition will remain unchanged.
OBLIGATIONS AND CONTINGENCIES
The Company is liable for future restoration and abandonment costs
associated with its oil and gas properties. These costs include future site
restoration and plugging costs of wells. The cost of future abandonment of
producing wells has not been determined. Management believes that these costs
will not have a material adverse effect upon its financial position or results
of operations.
OTHER
The Company has a total of four full-time employees as of September 30,
2000.
All of the company's revenues during the last fiscal year were derived
from domestic sources.
ITEM 2 - DESCRIPTION OF PROPERTY
The Company owns an interest in 9 currently producing oil and gas wells
located in Utah and Wyoming.
The Company attempts to maintain all of its operating wells in good
working condition. Wells operated by the Company are generally overseen by
contract pumpers familiar with the oil and gas business in the area that the
well is located.
The operated wells are secured by the Company's line of credit. Other
than the line of credit by Zions Bank the operated oil and gas wells of the
Company have no other liens or encumbrances.
The Company owns a small interest in approximately 120 other oil and
gas wells that it does not operate. The Company owns its interest in these
properties either as a working interest owner or as an overriding royalty
interest owner. These interests vary from the Company owning an interest of less
than a half of a percent to as high as eight and a third percent. The
non-operating properties are located primarily in Colorado and Wyoming. The
non-operating properties account for less than 25% of the Company's total oil
and gas revenues. The Company also owns various non-producing oil and gas leases
that it is either attempting to sell to industry partners or develop itself.
EXPLORATION AND PRODUCTION
Since emerging from Chapter 11 bankruptcy, the Company has not
participated as a working interest owner in the drilling of any wells. However,
<PAGE>
wells have been drilled in which the Company owns an overriding royalty
interest. During the fiscal years ending September 30, 2000, and September 30,
1999 the Company has not participated in the drilling of any wells.
In the next year the Company plans on participating in the drilling of
at least one well if it is able to successfully market one of its drilling
programs. It is currently marketing several projects to outside investors.
PROVED RESERVES
The following table sets forth the estimated proved developed oil and
gas reserves, net to Company's interest, of oil and gas properties as of
September 30, 2000. The reserve information is based on the independent
appraisal prepared by Fall Line Energy Inc. of Littleton, Colorado, and was
calculated in accordance with the rules and regulations of the Securities and
Exchange Commission. The oil price used was based on posted pricing as of
September 30, 2000. An historical price differential was calculated for each
property between the most recent wellhead price received and the monthly strip
of historical WTI postings as obtained from the US Bank Energy Group. This
differential was then applied to the quoted September 30th WTI posting of
$27.50, to obtain the price used. The gas price was handled in a similar
fashion. The differential was calculated between the actual price received and
the average of four regional gas pipeline postings. The differential was then
applied to the Index Price for September 30th of $4.13/MMBTU. For comparison
purposes, this price corresponds to a Henry Hub Spot Price of $4.64/MMBTU as of
September 30, 2000. All product pricing were held flat for the life of the
project.
Present Value of Estimated Future Net Revenues
<TABLE>
<CAPTION>
Estimated Proved Reserves
Discounted at
Oil Gas 10% (1)
(MBbl) (MMCF) (M$)
Proved Developed
<S> <C> <C> <C>
Operated
Canyon State 2-36 ......................... 9.30 28.98 $152.941
Climax 7-2 .................................101.93 0.00 816.247
Pilot A-1 .................................. 0.00 132.26 348.093
Sheldon Tribal Lease (includes
31-1, 21-1, 42-1 wells) ................. 15.09 0.00 143.928
South Pine Ridge 7-6 ........................ 0.50 55.14 113.380
Willow Creek 29-13 ......................... 15.11 33.40 210.420
Non-Operated
Mamm Creek ................................. 0.00 49.98 135.788
Climax Minnelusa Unit ....................... 6.16 0.00 36.105
Hunter Mesa Unit ............................ 1.14 230.09 447.555
Haight-Pittman ............................. 0.00 3.84 10.819
Murdock 41-10 .............................. 2.56 0.00 14.481
Totals ........................................ 151.80 533.72 $2,429.757
</TABLE>
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========== =====================
(1) The oil reserves assigned to the properties in the evaluation were
determined by analyzing current test data, extrapolating historical production
data, and comparing field data with the production history of similar wells in
the area. The current volatility of oil prices provides an element of
uncertainty to any estimates. If prices should vary significantly from those
projected in the appraisal, the resulting values would change substantially. The
reserve estimates contained in the engineering report are based on accepted
engineering and evaluation principles. The present value of estimated future net
revenues, discounted at 10%, does not necessarily represent an estimate of a
fair market value for the evaluated properties.
The reserve estimates contained herein are the same that are required
to be filed with any governmental agency.
There are numerous uncertainties inherent in estimating quantities of
proved oil reserves. The estimates in the appraisal are based on various
assumptions relating to rates of future production, timing and amount of
development expenditures, oil prices, and the results of planned development
work. Actual future production rates and volumes, revenues, taxes, operating
expenses, development expenditures, and quantities of recoverable oil reserves
may vary substantially from those assumed in the estimates. Any significant
change in these assumptions, including changes that result from variances
between projected and actual results, could materially and adversely affect
future reserve estimates. In addition, such reserves may be subject to downward
or upward revision based upon production history, results of future development,
prevailing oil prices, and other factors.
The actual amount of the Company's proved reserves are dependent on the
prevailing price for oil, which is beyond the Company's control or influence.
World oil prices declined significantly during 1997 and 1998 from previous years
and have increased significantly during the 1999 and 2000. There can be no
assurance that oil prices will decline or increase in the future. 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; market uncertainty;
political conditions in international oil producing regions; the extent of
domestic production and importation of oil; the level of consumer demand;
weather conditions; the competitive position of oil as a source of energy as
compared with natural gas, coal, nuclear energy, hydroelectric power, and other
energy sources; the refining capacity of prospective oil purchasers; the effect
of federal and state regulation on the production, transportation and sale of
oil; and other factors, all of which are beyond the control or influence of the
Company.
WELLS AND ACREAGE
In the oil and gas industry and as used herein, the word "gross" well
or acre is a well or acre in which a working interest is owned; the number of
gross wells is the total number of wells in which a working interest is owned. A
"net" well or acre is deemed to exist when the sum of fractional ownership
working interests in gross wells or acres equals one. The number of net wells or
acres is the sum of the fractional working interests owned in gross wells or
acres.
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As of September 30, 2000, the Company owned 5.87 net productive wells
and 13 gross productive wells.
Set forth below is information respecting the developed and undeveloped
acreage owned by the Company in Utah, Colorado, Nevada and Wyoming as of
September 30, 2000.
Developed Acreage Undeveloped Acreage
----------------- ----------------------
Gross Net Gross Net
------ ------- -------- --------
2,600 1,600 26,849 11,387
Annual rentals on all undeveloped leases for the fiscal year ending
September 30, 2001 are expected to be approximately $17,080.
PRODUCTION AND SALE OF OIL AND GAS
The following table summarizes certain information relating to the
Company's net oil and gas produced and from the Company's properties, after
royalties, during the periods indicated.
Year Ended September 30,
------------------------
1999 2000
------- ------
Average net daily production of oil (Bbl) 53 48
Average net daily production of gas (MCF) 234 324
Average sales price of oil ($ per Bbl) $14.86 $25.04
Average sales price of gas ($ per MCF) $1.62 $2.10
Average lifting cost per bbl oil equiv. $ 9.11 $9.69
DELIVERY COMMITMENTS
The Company sells its oil to the company willing to pay the highest
price for its crude oil. In the area that the Company sells its oil there are
several different companies offering to purchase the Company's oil. The Company
sells all of its crude oil on a 30 day contracts that can be terminated at
anytime upon 30 day notice by either party. The Company has also entered into
contracts to sell its natural gas on monthly spot prices. The contracts do not
require the Company to produce or sell any quantity of gas. The contracts only
provide that the price will be paid up to a certain amount of gas produced from
the wells, which is more than the wells are currently producing. Therefore, the
Company has no commitments that obligate the Company to produce any set amount
of oil or gas.
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The Company does not own the office space in which its business is
located. The Company has moved to a new office condominium owned by the
Company's Board of Directors. The Company pays less for rent than it did at its
former location. To provide more operating capital for the Company the Company
has chosen to lease the office space from the Company's Board of Directors who
have purchased the office condominium themselves. The new office space is leased
on terms reasonable for the same kind of office space in the area that it is
located. The office space is 1,950 square feet with an unfinished basement of
approximately 975 square feet. The Company's address is 1206 West South Jordan
Parkway, Unit B, South Jordan, Utah 85095-4551. The Company's telephone number
remains (801) 566-3000 but the fax number has been changed to (801) 446-5500.
ITEM 3 - LEGAL PROCEEDINGS
The Company may become or is subject to investigations, claims,
or lawsuits ensuing out of the conduct of its business, including those related
to environmental safety and health, commercial transactions etc. The Company is
currently not aware of any such items, which it believes could have a material
adverse affect on its financial position.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ending September 30, 2000.
PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET PRICE AND DIVIDENDS OF COMPANY
The Company is listed on the over-the-counter market on the
NASDAQ OTC Bulletin Board. The range of high and low bid information for the
shares of the Company's stock for the last two complete fiscal years, as
reported by the OTC Bulletin Board National Quotation Bureau, is set forth
below. Such quotations represent prices between dealers, do not include retail
markup, markdown or commission, and does not represent actual transactions.
Year Ended September 30, 2000 High Low
First Quarter $.25 $.1875
Second Quarter .20 .1563
Third Quarter .23 .22.5
Fourth Quarter .15 .20
Year Ended September 30, 1999 High Low
First Quarter $0.15 $0.10
Second Quarter 0.2813 0.125
Third Quarter 0.2188 0.125
Fourth Quarter 0.375 0.125
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As of September 30, 2000 the Company had issued and outstanding
8,135,018 common shares held by approximately 1,165 holders of record.
There have been no cash dividends declared by the Company since
its inception. Further, there are no restrictions that would limit the Company's
ability to pay dividends on its common equity or that would be likely to do so
in the future.
The Company has no plans to register any of its securities under
the Securities Act for sale by security holders. There is no public offering of
equity and there is no proposed public offering of equity.
RECENT SALES OF UNREGISTERED SECURITIES
In June of 1998, the Company effected a reverse stock split of 10
common shares of the Company for one share. After the reverse stock split the
Company had issued and outstanding 4,289,431 common shares. Presently, the
Company has 8,135,018 common shares issued and outstanding. The 3,845,587 common
shares issued after the reverse stock split have been for purposes of paying the
Company's obligation under the Company's Employee Stock Ownership Plan, for
providing working capital and paying the creditors and expenses under the
Company's plan of reorganization in bankruptcy.
The Company has an Employee Stock Ownership Plan, in which the Company
can invest 10% of the compensation for full-time employees for salary or bonuses
in common stock of the Company. All full-time employees of the Company
participate in the Employee Stock Ownership Plan on the same terms and
conditions as management. Shares in the Company's Employee Stock Ownership Plan
("ESOP") before November 1999 were issued from the Company to the Plan every six
months to cover the Company's obligation to the ESOP. From January 1997 to
September 1998, the Company issued to the ESOP 248,244 common shares calculated
on a post reverse stock split basis.
In November of 1998, the ESOP in conjunction with the offer made to
shareholders of the Company purchased 1,500,000 common shares of the Company's
common stock at a price of $.20 per share in the form of a stock subscription
receivable. The stock subscription receivable owed by the ESOP to the Company is
reduced every six months by the amount of the obligation owed by the Company
towards the ESOP for that period. The stock subscription receivable bears
interest at a rate of six percent per annum.
For the Company to emerge from its Chapter 11 bankruptcy it required
enough capital to pay its creditors under the reorganization plan and needed
sufficient capital to operate. From July 1998 to February of 1999, the Company
issued 2,246,426 common shares to shareholders of the Company for a total
consideration of $415,308. From the $415,308 raised by the Company,
approximately $300,000 was used for paying bankruptcy expenses and for paying
the creditors of the Company. The remaining $115,308 of the $415,308 raised was
used for operating capital of the Company.
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Sales of the Company's securities to the shareholders under the
Bankruptcy Plan and to the ESOP plan were exempt from registration under the
Securities Act of 1933 pursuant to Section 4(2) of the Act.
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPRERATIONS -2000 Compared to 1999
Total revenue for fiscal year 2000 was $1,206,309 as compared to total
revenue for fiscal year 1999 of $670,864. The increase in revenue was due
primarily to higher product price for fiscal 2000 as compared to fiscal 1999.
Total oil and gas sales (including royalty revenue) climbed from $655,446 to
$1,076,107. Average gas prices increased from $1.62 MCF (1999) to $2.10 MCF
(2000) and average daily gas production increased 38 percent as the Pilot gas
property was restored to production and additional production was realized from
the Hunter Mesa Unit royalty as more wells were brought on line. Oil production
declined nine percent due to natural production declines. However this drop in
oil production was more than offset by product price increases as average oil
prices per barrel soared from $14.86 to $25.04.
Project and lease sales income increased from $3,270 to $129,002 as the
Company sold one of its coalbed methane projects.
Costs of operations increased from $462,711 to $574,863. This item
includes all well operating expenses and any amounts paid to employees and other
interest owners for their interest in producing properties. Increased
disbursements to interest owners due to higher product prices accounted for most
of the increase.
General and administrative costs increased from $304,734 to $325,221
due primarily to salary increases for employees.
In fiscal 1999 the Company sold all of its low BTU Colorado gas
properties and several small non-operated oil properties in Wyoming. The sale of
these properties resulted in a gain of approximately $1,800,000. The Company
also abandoned most of its Nevada properties and wrote off some other small
non-producing properties. The net result of all these actions was gain of
$1,323,080 on "assets sold or abandoned" for 1999. In fiscal 2000 the Company
wrote off some of its non-producing oil properties in Wyoming for a loss on sale
of assets abandoned of $6,447.
During fiscal year ending September 30, 1999, the Company retired all
of its bank debt with proceeds from the sale of properties mentioned above. The
Company also received $164,068 from the issuance of common stock to its
shareholders during the fiscal year ending September 30, 1999. Common stock of
the Company was issued to the shareholders for the $415,308 received by the
Company from July 1998 to February 1999.
The Company's total stockholders' equity increased from $924,530 to
$946,044. This increase during fiscal 2000 in shareholder's equity was the
result of positive net income of $9050 and a decrease in the ESOP stock
subscription receivable of $12,464. The current ratio decreased from 3.55 (FY
1999) to 3.22 (FY 2000). Net income dropped from $785,384 to $9,050. However,
net income for 1999 was entirely due to gain on sale of assets sold or abandoned
of $1,323,080. Excluding this gain total income increased from a negative
$537,696 to a positive $9,050.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Historically the Company has funded operations primarily from earnings
and bank borrowing. As of September 30, 2000 the Company had working capital of
$326,689 and an unused line of credit with Zions Bank for $750,000. This line of
credit is collateralized by all of the companies operated oil and gas
properties. The line of credit bears interest at prime rate plus 1.0%. The line
of credit with Zions Bank matured on December 1, 1999, and was renewed for a two
year period ending December 31, 2001. As of September 30, 1999 and as of
September 30, 2000, no amount was owed on the line of credit.
During fiscal 2000 cash provided in operating activities was $61,395
while cash used in investing activities was $158,633. For September 30, 2000,
there was no cash flow from financing activities. There was a net decrease in
cash of $97,238, as cash decreased from $343,919 to $246,681. The changes in
cash from operating activities, investing activities and financing activities
from 1999 to 2000, were all primarily a result of the Company returning to a
normal mode of operation after having sold a substantial portion of its non
producing oil and gas assets to retire its bank debt as addressed above in
Results of Operations.
OIL AND GAS PROPERTIES
The Company as of the date of this filing is the owner of several oil
and gas properties located throughout the Rocky Mountain Region. The Company
operates four properties in Utah, three in Wyoming and one in Colorado. The
standardized measure of discounted future net cash flows of all the Company's
properties as of September 30, 2000 is $1,611,000.
INCOME TAXES
The Company's present net operating loss carryforward of $2,292,000
arises from operations for the year ended September 30th, 1997. Carryforwards of
net operating losses for years prior to the year ended September 30th, 1997 were
completely used for tax purposes to offset net income for the year ended
September 30th, 1999. The present loss carryforward of the Company will expire
in the year 2012.
The Company does not anticipate that it will have taxable income during
the carryforward period because of the applicable net operating loss.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
This report on Form 10-KSB includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). All statements other than statements of historical
facts included in this report, including, without limitation, statements under
"Description of Business", "Description of Property' and "Management's
Discussion and Analysis or Plan of Operation" regarding the Company's financial
position, reserve quantities and net present values, business strategy, plans
and objectives of management of the Company for future operations and capital
expenditures, are forward-looking statements and the assumptions upon which such
forward- looking statements are based are believed to be reasonable. The Company
can give no assurance that such expectations and assumptions will prove to be
correct. Reserve estimates of oil and gas properties are generally different
<PAGE>
from the quantities of oil and natural gas that are ultimately recovered or
found. This is particularly true for estimates applied to exploratory prospects.
Additionally, any statements contained in this report regarding forward-looking
statements are subject to various known and unknown risks, uncertainties and
contingencies, many of which are beyond the control of the Company. Such things
may cause actual results, performance, achievements or expectations to differ
materially from the anticipated results, performance, achievements or
expectations. Factors that may affect such forward-looking statements include,
but are not limited to: the Company's ability to generate additional capital to
complete any planned drilling and exploration activities; risks inherent in oil
and gas acquisitions, exploration, drilling, development and production; price
volatility of oil and gas; competition; shortages of equipment, services and
supplies; government regulation; environmental matters; financial condition of
the other companies participating in the exploration, development and production
of oil and gas programs; and other matters beyond the Company's control. All
written and oral forward-looking statements attributable to the Company or
persons acting on its behalf subsequent to the date of this report are expressly
qualified in their entirety by this disclosure.
ITEM 7 - FINANACIAL STATEMENTS
PIONEER OIL AND GAS
Financial Statements
September 30, 2000 and 1999
<PAGE>
PIONEER OIL AND GAS
Index to Financial Statements
Report of Jones, Wright, Simkins & Associates LLP F-2
Report of Tanner + Co. F-3
Statement of income F-4
Balance sheet F-5
Statement of stockholders' equity (deficit) F-6
Statement of cash flows F-7
Notes to financial statements F-8
Supplementary schedules on oil and gas operations F-18
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and
Stockholders of Pioneer Oil and Gas
We have audited the accompanying balance sheet of Pioneer Oil and Gas as of
September 30, 2000, and the related statements of income, stockholders' equity,
and cash flows for the year then ended. 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 audit. We conducted our audit
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
audit provides 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 Pioneer Oil and Gas as of September 30, 2000, and the
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
JONES, WRIGHT, SIMKINS & ASSOCIATES LLP
Logan, Utah
December 1, 2000
F-2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and
Stockholders of Pioneer Oil and Gas
We have audited the accompanying balance sheet of Pioneer Oil and Gas as of
September 30, 1999 and the related statement of income, stockholders' equity
(deficit), and cash flows for the year then ended. 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 audit. We
conducted our audit 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 audit provides 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 Pioneer Oil and Gas as of September
30, 1999 and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
TANNER + CO.
Salt Lake City, Utah
November 15, 1999
F-3
<PAGE>
PIONEER OIL AND GAS
Statement of Income
<TABLE>
<CAPTION>
Years Ended September 30,
2000 1999
------------------------------------
<S> <C> <C>
Revenue:
Oil and gas sales $927,876 $585,121
Royalty revenue 148,231 70,325
Operational reimbursements 1,200 12,148
Project and lease sales income 129,002 3,270
------------------------------------
1,206,309 670,864
------------------------------------
Costs and expenses:
Cost of operations 574,863 462,711
General and administrative expenses 325,221 304,734
Exploration costs 188,177 152,934
Lease rentals 5,761 4,710
Depreciation, depletion and amortization 120,836 151,472
------------------------------------
1,214,858 1,076,561
------------------------------------
Loss from operations (8,549) (405,697)
------------------------------------
Other income (expense):
(Loss) gain on assets sold or abandoned (6,447) 1,323,080
Interest income 22,617 19,008
Interest expense (6,739) (129,372)
Other 8,168 (21,635)
------------------------------------
17,599 1,191,081
------------------------------------
Income before provision
for income taxes 9,050 785,384
Provision for income taxes - -
------------------------------------
Net income $9,050 $785,384
------------------------------------
Net income per common share-
basic and diluted $ - $ .10
------------------------------------
Weighted average common shares-
basic and diluted 8,135,000 7,723,000
------------------------------------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
Balance Sheet
September 30,
Assets 2000 1999
------------------------------------
<S> <C> <C>
Current assets:
Cash $246,681 $343,919
Accounts receivable 130,398 105,798
Resale leases, at lower of cost or market 96,925 17,333
------------------------------------
Total current assets 474,004 467,050
Property and equipment - net 617,355 586,005
Other assets 2,000 3,000
------------------------------------
$1,093,359 $1,056,055
------------------------------------
-----------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $125,762 $109,099
Accrued expenses 21,553 22,426
------------------------------------
Total current liabilities 147,315 131,525
------------------------------------
Commitments and contingencies - -
Stockholders' equity:
Common stock, par value $.001 per share, authorized
50,000,000 shares authorized; 8,135,018 shares issued
and outstanding 8,134 8,134
Additional paid-in capital 2,521,069 2,521,069
Stock subscription receivable (280,996) (293,460)
Accumulated deficit (1,302,163) (1,311,213)
------------------------------------
Total stockholders' equity 946,044 924,530
------------------------------------
$1,093,359 $1,056,055
------------------------------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
Statement of Stockholders' Equity (Deficit)
Years Ended September 30, 2000 and 1999
<TABLE>
<CAPTION>
Additional Stock
Common Stock Paid-in Subscription Accumulated
----------------------
Shares Amount Capital Receivable Deficit Total
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
October 1, 1998 5,644,792 $ 5,644 $ 2,059,491 $ - $ (2,096,597) $ (31,462)
Issuance of common stock
for:
Cash 990,226 990 163,078 - - 164,068
Receivable 1,500,000 1,500 298,500 (300,000) - -
Payments on stock
subscription receivable - - - 6,540 - 6,540
Net income - - - - 785,384 785,384
---------------------------------------------------------------------------------
Balance at
September 30, 1999 8,135,018 8,134 2,521,069 (293,460) (1,311,213) 924,530
Payments on stock
subscription receivable - - - 12,464 - 12,464
Net income - - - - 9,050 9,050
---------------------------------------------------------------------------------
Balance at
September 30, 2000 8,135,018 $ 8,134 $2,521,069 $(280,996) $(1,302,163) $946,044
---------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
Statement of Cash Flows
<TABLE>
<CAPTION>
Years Ended September 30,
2000 1999
------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $9,050 $785,384
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Loss (gain) on assets sold or abandoned 6,447 (1,323,080)
Depreciation, depletion and amortization 120,836 151,472
Employee benefit plan expense 27,948 -
Interest income (15,484) -
(Increase) decrease in:
Accounts receivable (24,600) (20,705)
Resale leases (79,592) 34,713
Other assets 1,000 -
Increase (decrease) in:
Accounts payable 16,663 (61,502)
Accrued expenses (873) (280,998)
Outstanding checks in excess of bank balance - (78,854)
------------------------------------
Net cash provided by (used in)
operating activities 61,395 (793,570)
------------------------------------
Cash flows from investing activities:
Acquisition of property and equipment (158,633) (34,575)
Proceeds from sale of property - 2,002,000
------------------------------------
Net cash (used in) provided by
investing activities (158,633) 1,967,425
----------------------------------
Cash flow from financing activities:
Proceeds from note payable - 75,727
Payments on note payable - (1,331,419)
Proceeds from issuance of common stock - 164,068
Collection of stock subscription receivable - 6,540
------------------------------------
Net cash used in
financing activities - (1,085,084)
------------------------------------
Net (decrease) increase in cash (97,238) 88,771
Cash, beginning of year 343,919 255,148
------------------------------------
Cash, end of year $246,681 $343,919
------------------------------------
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
PIONEER OIL AND GAS
Notes to Financial Statements
September 30, 2000 and 1999
PIONEER OIL AND GAS
1. Organization and Summary of Significant Accounting Policies
The Company is incorporated under the laws of the state of Utah and is primarily
engaged in the business of acquiring, developing, producing and selling oil and
gas properties to companies located in the continental United States.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid investments with a maturity of three months or less to be cash
equivalents.
Concentration of Credit Risk
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such account. The Company believes it is not exposed to any significant credit
risk on cash and cash equivalents.
Resale Leases
The Company capitalizes the costs of acquiring oil and gas leaseholds held for
resale, including lease bonuses and any advance rentals required at the time of
assignment of the lease to the Company. Advance rentals paid after assignment
are charged to expense as carrying costs in the period incurred. Costs of oil
and gas leases held for resale are valued at lower of cost or net realizable
value and included in current assets since they are expected to be sold within
one year, although the holding period of individual leases may be in excess of
one year. The cost of oil and gas leases sold is determined on a specific
identification basis.
F-8
<PAGE>
PIONEER OIL AND GAS
Notes to Financial Statements
continued
1. Organization and Summary of Significant Accounting Policies Continued
Oil and Gas Producing Activities
The Company utilizes the successful efforts method of accounting for its oil and
gas producing activities. Under this method, all costs associated with
productive exploratory wells and productive or nonproductive development wells
are capitalized while the costs of nonproductive exploratory wells are expensed.
If an exploratory well finds oil and gas reserves, but a determination that such
reserves can be classified as proved is not made after one year following
completion of drilling, the costs of drilling are charged to operations.
Indirect exploratory expenditures, including geophysical costs and annual lease
rentals, are expensed as incurred. Unproved oil and gas properties that are
individually significant are periodically assessed for impairment of value, and
a loss is recognized at the time of impairment by providing an impairment
allowance. Other unproved properties are amortized based on the Company's
experience of successful drilling and average holding period. Capitalized costs
of producing oil and gas properties, after considering estimated dismantlement
and abandonment costs and estimated salvage values, are depreciated and depleted
by the units-of-production method. Support equipment and other property and
equipment are depreciated over their estimated useful lives.
On the sale or retirement of a complete unit of a proved property, the cost and
related accumulated depreciation, depletion, and amortization are eliminated
from the property accounts, and the resultant gain or loss is recognized. On the
retirement or sale of a partial unit of proved property, the cost is charged to
accumulated depreciation, depletion, and amortization with a resulting gain or
loss recognized in income.
On the sale of an entire interest in an unproved property for cash or cash
equivalent, gain or loss on the sale is recognized, taking into consideration
the amount of any recorded impairment if the property had been assessed
individually. If a partial interest in an unproved property is sold, the amount
received is treated as a reduction of the cost of the interest retained.
F-9
<PAGE>
PIONEER OIL AND GAS
Notes to Financial Statements
continued
1. Organization and Summary of Significant Accounting Policies Continued
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets. Expenditures for maintenance and repairs are
expensed when incurred and betterments are capitalized. When assets are sold,
retired or otherwise disposed of, the applicable costs and accumulated
depreciation, depletion and amortization are removed from the accounts, and the
resulting gain or loss is reflected in operations.
Income Taxes
Deferred income taxes arise from temporary differences resulting from income and
expense items reported for financial accounting and tax purposes in different
periods. Deferred taxes are classified as current or noncurrent, depending on
the classification of the assets and liabilities to which they relate. Deferred
taxes arising from temporary differences that are not related to an asset or
liability are classified as current or noncurrent depending on the periods in
which the temporary differences are expected to reverse. Temporary differences
result primarily from a net operating loss carryforward and intangible drilling
costs and depletion.
Earnings Per Share
The computation of basic earnings per common share is based on the weighted
average number of shares outstanding during each year.
The computation of diluted earnings per common share is based on the weighted
average number of shares outstanding during the year plus the common stock
equivalents which would arise from the exercise of stock options and warrants
outstanding using the treasury stock method and the average market price per
share during the year. Common stock equivalents are not included in the diluted
earnings per share calculation when their effect is antidilutive.
Revenue Recognition
Revenue is recognized from oil sales at such time as the oil is delivered to the
buyer. Revenue is recognized from gas sales when the gas passes through the
pipeline at the well head. Revenue from overriding royalty interests is
recognized when earned.
The Company does not have any gas balancing arrangements.
F-10
<PAGE>
PIONEER OIL AND GAS
Notes to Financial Statements
continued
1. Organization and Summary of Significant Accounting Policies Continued
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
primarily related to oil and gas property reserves and prices, that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Reclassifications
Certain amounts in the 1999 financial statements have been reclassified to
conform with the current year presentation.
2. Property and Equipment
Property and equipment consists of the following:
September 30,
-----------------------------------
2000 1999
-----------------------------------
Oil and gas
properties
(successful efforts method) $1,733,448 $1,590,708
Office furniture and equipment 127,873 118,427
-----------------------------------
1,861,321 1,709,135
Less accumulated
depreciation, depletion and
amortization (1,243,966) (1,123,130)
-----------------------------------
$617,355 $586,005
-----------------------------------
3. Bank Line of Credit
The Company has a bank revolving line-of-credit in the amount of $750,000
bearing interest at the bank's prime rate plus 1 percent (1.5 percent at
September 30, 1999) and is secured by producing properties. The line-of-credit
matures on December 31, 2001 and had no outstanding balance at September 30,
2000 and 1999.
F-11
<PAGE>
4. Stock Subscription Receivable
The stock subscription receivable consists of a six percent receivable due from
the Company's ESOP. The receivable is reduced every six months by the amount of
the obligation owed by the Company to the ESOP, under the terms of the ESOP (see
note 10).
5. Income Taxes
The provision for income taxes differs from the amount computed at federal
statutory rates as follows:
<TABLE>
<CAPTION>
Years Ended
September 30,
----------------------------
2000 1999
-------------- -------------
<S> <C> <C>
Income tax at statutory rate $(1,000) $(267,000)
Change in valuation allowance 1,000 267,000
-------------- -------------
$ - $ -
-------------- -------------
</TABLE>
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
September 30,
-----------------------------
2000 1999
------------- ---------------
<S> <C> <C> <C>
Intangible drilling costs and depletion $(145,000) $(107,000)
Net operating loss carry forward 779,000 744,000
AMT credit carry forward 5,000 3,000
------------- ---------------
639,000 640,000
Valuation allowance (639,000) (640,000)
------------- ---------------
$ - $ -
------------- ---------------
</TABLE>
A valuation allowance has been recorded for the full amount of the deferred tax
asset because it is more likely than not that the deferred tax asset will not be
realized.
F-12
<PAGE>
PIONEER OIL AND GAS
Notes to Financial Statements
continued
5. Income Taxes Continued
As of September 30, 2000, the Company had net operating loss carryforward of
approximately $2,292,000. This carryforward expires in 2012. If substantial
changes in the Company's ownership should occur, there would be an annual
limitation of the amount of NOL carry forward which could be utilized. Also, the
ultimate realization of this carryforward is due, in part, on the tax law in
effect at the time and future events which cannot be determined.
During the year ended September 30, 1999, the Company's valuation allowance was
reduced for the expiration of both the investment tax credit carryforward and a
portion of the net operating loss carryforward.
6. Sales to Major Customers
The Company had sales to major customers during the years ended September 30,
2000 and 1999, which exceeded ten percent of total sales as follows:
Years Ended
September 30,
--------------------------------
2000 1999
--------------------------------
Company A $450,000 $191,844
Company B $ - $86,025
7. Related Party Transactions
The Company acts as the operator for several oil and gas properties in which
employees, officers and other related and unrelated parties have a working or
royalty interest. At September 30, 2000 and 1999 there was $35,244 and $7,390,
respectively, included in accounts payable due to related parties as a result of
these activities. The Company also is the general manager in certain limited
partnerships and the operator for certain joint ventures formed for the purpose
of oil and gas exploration and development.
During the year ended September 30, 2000, the Company began leasing its office
space from certain officers of the Company. The lease requires monthly rental
payments of $2,500 plus all expenses pertaining to the office space and expires
in September 2005. Future minimum lease payments for the next five years are
$30,000 each year. Rent expense for the year ended September 30, 2000, was
approximately $30,000.
The Company has a stock subscription receivable from the ESOP (see note 4).
F-13
<PAGE>
PIONEER OIL AND GAS
Notes to Financial Statements
continued
8. Supplemental Disclosures of Cash Flow Information
Operations reflect actual amounts paid for interest and income taxes as follows:
Years Ended
September 30,
-----------------------------------
2000 1999
-----------------------------------
Interest $7,000 $129,000
-----------------------------------
Income taxes $5,000 $100
-----------------------------------
During the year ended September 30, 2000, the company recorded interest income
(on the stock subscription receivable) of $15,484, reduced the stock
subscription receivable by $12,464 and recorded an employee benefit plan
contribution of $27,948.
During the year ended September 30, 1999, the Company issued 1,500,000 shares of
common stock in exchange for a stock subscription receivable in the amount of
$300,000.
9. Fair Value of Financial Instruments
The Company's financial instruments consist of cash, receivables, payables, and
a note payable. The carrying amount of cash, receivables and payables
approximates fair value because of the short-term nature of these items. The
carrying amount of the note payable approximates fair value as the note bears
interest at floating market interest rates.
10. Stock Options and Warrants
Employee Stock Ownership Plan
The Company has adopted a noncontributory employee stock ownership plan (ESOP)
covering all full-time employees who have met certain service requirements. It
provides for discretionary contributions by the Company as determined annually
by the Board of Directors, up to the maximum amount permitted under the Internal
Revenue Code. The plan has received IRS approval under Section 401(A) and 501(A)
of the Internal Revenue Code. Pension expense charged to operations for the
years ended September 30, 2000 and 1999 was $27,948 and $24,540, respectively.
All outstanding shares held by the ESOP are included in the calculation of
earnings per share.
F-14
<PAGE>
PIONEER OIL AND GAS
Notes to Financial Statements continued
10. Stock Options and Warrants Continued
The Company has granted stock options and warrants to certain officers and
employees of the Company to purchase shares of the Company's common stock. The
exercise price of the options and warrants is equal to or in excess of the fair
market value of the stock on the date of grant. A schedule of the options and
warrants at September 30, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------
Number of Exercise
Price Per
Share
-----------------------------------------------------
Options Warrants
-----------------------------------------------------
<S> <C> <C> <C>
Outstanding at .55 - 1.20
October 1, 1998 60,000 300,000 $
Granted 420,000 300,000 .30
Canceled (60,000) (300,000) .55 - 1.20
-----------------------------------------------------
Outstanding at $ .30
September 30,1999 420,000 300,000 .
Expired - (300,000) .30
-----------------------------------------------------
Outstanding at - $ .30
September 30, 2000 420,000 . .30
-----------------------------------------------------
</TABLE>
Stock Based Compensation Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123) gives entities the choice
between adopting a fair value method or continuing to use the intrinsic value
method under Accounting Principles Board (APB) Opinion No. 25 with footnote
disclosures of the pro forma effects if the fair value method had been adopted.
The Company has opted for the latter approach. Had compensation expense for the
company's stock options and warrants been determined based on the fair value at
the grant date for awards in 1999, consistent with the provisions of SFAS No.
123, the Company's results of operations would have been as follows:
Year Ended
September 30,
1999
-----------------------------
Net income - as reported $ 785,384
Net income - pro forma $ 685,195
Earnings per share - as reported $ .10
Earnings per share - pro forma $ .09
-----------------------------
F-15
<PAGE>
PIONEER OIL AND GAS
Notes to Financial Statements continued
10. Stock Options and Warrants Continued
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:
September 30,
1999
---------------------------
Expected dividend yield $ -
Expected stock price volatility 116%
Risk-free interest rate 6.06%
Expected life of options 2 to 3 years
---------------------------
The weighted average fair value of options and warrants granted during 1999 was
$.14.
During the year ended September, 30, 2000, no options or warrants were granted
and, therefore, there would be no pro forma effect on the 2000 operations.
The following table summarizes information about stock options outstanding at
September 30, 2000:
<TABLE>
<CAPTION>
Outstanding Exercisable
-----------------------------------------------------------------------------------------------------------
Exercise Number Weighted Weighted Number Weighted Average
Average
Remaining
Contractual Average
Life Exercise Exercise
Price Outstanding (Years) Price Exercisable Price
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ .30 420,000 1.7 $ .30 420,000 $ .30
-----------------------------------------------------------------------------------------------------------
</TABLE>
F-16
<PAGE>
PIONEER OIL AND GAS
Notes to Financial Statements
continued
11. Commitments and Contingencies
Limited Partnerships
The Company has an immaterial interest in two limited partnership drilling
programs and acts as the general partner. As the general partner, the Company is
contingently liable for any obligations of the partnerships and may be
contingently liable for claims generally incidental to the conduct of its
business as general partner. As of September 30, 2000, the Company was unaware
of any such obligations or claims arising from these partnerships.
Employment Agreements
The Company has entered into severance pay agreements with officers of the
Company who also serve as board members. Under the terms of the agreements, a
board member who is terminated shall receive severance pay equal to the amount
such board member received in salary and bonus for the two years prior to
termination.
Litigation
The Company may become or is subject to investigations, claims or lawsuits
ensuing out of the conduct of its business, including those related to
environmental safety and health, commercial transactions etc. The Company is
currently not aware of any such items which it believes could have a material
adverse affect on its financial position.
12. Recent Accounting Pronouncements
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of SFAS No. 133" and 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." SFAS 138 and 133 establishes accounting and reporting standards for
derivative instruments and requires recognition of all derivatives as assets or
liabilities in the statement of financial position and measurement of those
instruments at fair value. SFAS 133 is now effective for fiscal years beginning
after June 15, 2000. The Company believes that the adoption of SFAS 138 and 133
will not have any material effect on the financial statements of the Company.
In June 2000, the FASB issued SFAS No. 139, "Rescission of FASB Statement No.
53" and amendments to FASB Statements No. 63, 89 and 121. The Company believes
that the adoption of SFAS 139 will not have any material effect on the financial
statements of the Company.
F-17
<PAGE>
PIONEER OIL AND GAS
Schedule of Supplementary Information
On Oil and Gas Operations
The information on the Company's oil and gas operations as shown in this
schedule is based on the successful efforts method of accounting and is
presented in conformity with the disclosure requirements of the Statement of
Financial Accounting Standards No. 69 "Disclosures about Oil and Gas Producing
Activities."
Capitalized Costs Relating to Oil and Gas Producing Activities
<TABLE>
<CAPTION>
September 30,
------------------------------------
2000 1999
------------------------------------
<S> <C> <C>
Proved oil and gas properties and related equipment $1,733,448 $1,584,261
Unproved oil and gas properties - 6,447
------------------------------------
Subtotal 1,733,448 1,590,708
Accumulated depreciation, depletion and amortization
and valuation allowances (1,127,046) (1,012,865)
------------------------------------
$606,402 $577,843
------------------------------------
Costs Incurred in Oil and Gas Acquisition,
Exploration and Development Activities
</TABLE>
Years Ended
September 30,
------------------------------------
2000 1999
------------------------------------
Acquisition of properties:
Proved $ - $ -
- -
Unproved
Exploration costs 188,177 152,934
Development costs - 20,250
F-18
<PAGE>
<TABLE>
<CAPTION>
PIONEER OIL AND GAS
Schedule of Supplementary Information
On Oil and Gas Operations
Results of Operations for Producing Activities
Years Ended
September 30,
------------------------------------
2000 1999
------------------------------------
<S> <C> <C>
Oil and gas - sales $1,076,107 $655,446
Production costs net of reimbursements (580,110) (450,563)
Exploration costs (188,177) (152,934)
Depreciation, depletion and amortization
and valuation provisions (114,181) (144,411)
------------------------------------
Net income (loss) before income taxes 193,639 (92,462)
Income tax (provision) benefit (66,000) 20,000
------------------------------------
Results of operations from producing activities
(excluding corporate overhead and interest costs) $127,639 $(72,462)
------------------------------------
</TABLE>
F-19
<PAGE>
PIONEER OIL AND GAS
Schedule of Supplementary Information
On Oil and Gas Operations
Reserve Quantity Information (Unaudited)
The estimated quantities of proved oil and gas reserves disclosed in the table
below are based upon an appraisal of the proved developed properties by Fall
Line Energy, Inc. Such estimates are inherently imprecise and may be subject to
substantial revisions.
All quantities shown in the table are proved developed reserves and are located
within the United States.
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------------------
2000 1999
----------------------------------------------------------
Oil Gas Oil Gas
(bbls) (mcf) (bbls) (mcf)
----------------------------------------------------------
<S> <C> <C> <C> <C>
Proved developed and undeveloped reserves:
Beginning of year 176,802 368,136 185,006 5,899,880
Revision in previous estimates (3,949) 125,461 11,061 14,540
Discoveries and extension - 132,269 - -
Purchase in place - - - -
Production (21,045) (92,142) (19,265) (85,430)
Sales in place - - - (5,460,854)
----------------------------------------------------------
End of year 151,808 533,724 176,802 368,136
----------------------------------------------------------
Proved developed reserves:
Beginning of year 176,802 368,136 185,006 609,768
End of year 151,808 533,724 176,802 368,136
</TABLE>
F-20
<PAGE>
PIONEER OIL AND GAS
Schedule of Supplementary Information
On Oil and Gas Operations
Standardized Measure of Discounted Future Net Cash Flows and
Changes Therein Relating to Proved Oil and Gas Reserves (Unaudited)
<TABLE>
<CAPTION>
Years Ended
September 30,
2000 1999
----------------------------------------
<S> <C> <C>
Future cash inflows $6,505,000 $4,644,000
Future production and development costs (2,437,000) (1,794,000)
Future income tax expenses (1,383,000) (969,000)
----------------------------------------
2,685,000 1,881,000
10% annual discount for estimated timing of cash flows (1,074,000) (828,000)
----------------------------------------
Standardized measure of discounted future net cash flows $1,611,000 $1,053,000
----------------------------------------
</TABLE>
F-21
<PAGE>
PIONEER OIL AND GAS
Schedule of Supplementary Information
On Oil and Gas Operations
Standardized Measure of Discounted Future Net Cash Flows and Changes Therein
Relating to Proved Oil and Gas Reserves (Unaudited)-Continued
The preceding table sets forth the estimated future net cash flows and related
present value discounted at a 10% annual rate from the Company's proved reserves
of oil, condensate and gas. The estimated future net revenue is computed by
applying the year end prices of oil and gas (including price changes that are
fixed and determinable) and current costs of development and production to
estimated future production assuming continuation of existing economic
conditions. The values expressed are estimates only, without actual long-term
production to base the production flows, and may not reflect realizable values
or fair market values of the oil and gas ultimately extracted and recovered. The
ultimate year of realization is also subject to accessibility of petroleum
reserves and the ability of the Company to market the products.
Changes in the Standardized Measure of
Discounted Future Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Years Ended
September 30,
---------------------------------------
2000 1999
-------------------- ------------------
<S> <C> <C>
Balance, beginning of year $1,053,000 $3,711,000
Sales of oil and gas produced net of
production costs (252,000) (670,000)
Net changes in prices and production costs 300,000 (671,000)
Extensions and discoveries, less related
costs 209,000 -
Purchase and sales of minerals in place - (4,100,000)
Revisions of estimated development costs - -
Revisions of previous quantity estimate 444,000 1,662,000
Accretion of discount 105,000 371,000
Net changes in income taxes (248,000) 750,000
-------------------- ------------------
Balance, end of year $1,611,000 $1,053,000
-------------------- ------------------
</TABLE>
F-22
<PAGE>
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANACIAL DISCLOSURE
On November 13, 2000, the Company terminated its relationship with
Tanner + Co. ("Tanner"), the principal accountant previously engaged to audit
the Company's financial statements. Effective November 13, 2000, the Company
retained Jones, Wright, Simkins and Associates ("Jones") as the principal
accountants to replace Tanner. The Company's board of directors approved the
change of accountants from Tanner to Jones.
The audit reports of Tanner on the Company's financial statements
for the fiscal year ending September 30, 1999 did not contain any adverse
opinion or disclaimer of opinion, nor were they qualified or modified as to
uncertainty, audit scope, or accounting principles.
In connection with the audits of the fiscal year ending September 30, 2000
and the subsequent interim period through November 13, 2000, the date of
termination, the Company had no disagreements with Tanner on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedures. Had there been any disagreements that were not resolved to
their satisfaction, such disagreements would have caused Tanner to make
reference in connection with their opinion to the subject matter of the
disagreement. In addition, during that time there were no reportable events (as
defined in Item 304(a)(1)(iv) of Regulation S-B).
During the fiscal year ending September 30, 2000 and the interim
period through November 13, 2000, the date of termination, and prior to such
appointment, the Company did not consult with Jones regarding the application of
generally accepted accounting principles to a specific transaction, either
proposed or completed, or the type of audit opinion that might be rendered on
the Company's financial statements. Since there were no disagreements or
reportable events (as defined in Item 304(a)(2) of Regulation S-B), the Company
did not consult Jones in respect to these matters during that time.
The Company provided Tanner with a copy of its Form 8-K prior to filing it
<PAGE>
with the SEC. The Company requested that Tanner furnish the Company with a
letter to the SEC stating whether Tanner agreed with the above statements. A
copy of that letter dated November 14, 2000 is filed as Exhibit 1 to the
Company's Form 8-K filed with the SEC on November 16, 2000.
PART III
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
The directors, executive officers and significant employees of the company are
as follows:
POSITION
NAME AGE WITH COMPANY
---- --- ------------
Don J. Colton 54 President/Treasurer & Director
Gregg B. Colton 47 Vice President/Secretary & Director
John O. Anderson 58 Office Manager/Director
Michael L. Pinnell 56 Exploration Manager
Note: Don J. Colton and Gregg B. Colton are brothers and John O. Anderson is
their uncle.
Don J. Colton serves as the Company's President, Treasurer and
Chairman of its Board of Directors. Since the Company's inception in October
1980 Mr. Colton has served as the Company's President and has been involved in
all aspects of the business including exploration, acquisition and development
of producing properties. From 1979 to 1981, Mr. Colton was Chief Financial
Officer and a member of the Board of Directors of Drilling Research Laboratory
in Salt Lake City, Utah. The Drilling Research Laboratory is a subsidiary of
Terra Tech, Inc. and prior to his involvement with the Drilling Research
Laboratory, Mr. Colton was Manager of Special Projects for Terra Tech. Mr.
Colton received a BS in Physics from Brigham Young University in 1970 and a
Master of Business Administration from the University of Utah in 1974.
Gregg B. Colton serves as the Company's Vice President, Secretary, General
Counsel and a member of the Board of Directors. Mr. Colton has been employed
with the Company since it actually commenced business in 1981. Mr. Colton is
involved in handling the contracts, sales of oil and gas products and legal
problems of the Company along with the day to day decision making for the
Company with the Company's President. From 1981 to 1984, Mr. Colton was also a
partner in the law firm of Cannon, Hansen & Wilkinson. Mr. Colton is a member of
the Utah State Bar and a real estate broker. He is also a member of the
Corporate Counsel section for the Utah State Bar. Mr. Colton earned his BA from
the University of Utah in 1976 and a Juris Doctor and a Master of Business
Administration from Brigham Young University in 1981.
John O. Anderson serves as the Company's Office Manager along
with being a member of the Board of Directors. Mr. Anderson as Office Manager
handles the day to day accounting for the Company along with handling the
procurement of office supplies.
<PAGE>
The Company has employed Mr. Anderson since 1981 and prior to joining the
Company he worked in land investments. Mr. Anderson received his BS in Zoology
in 1968 from the University of California.
Michael L. Pinnell serves as the Company's Exploration Manager and has been
employed by the Company from 1989 to the present. Mr. Pinnell is in charge of
performing and supervising the geological and geophysical interpretation for the
Company's drilling prospects. Mr. Pinnell worked as a consultant for various
companies from 1985 to 1989 and performed geological and geophysical services.
From 1981 to 1985 Mr. Pinnell was the Exploration Manager for Fortune Oil
Company. Mr. Pinnell received a BS in Geology in 1970 and an MS in Geology from
Brigham Young University.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of
the Company's Common Stock, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). Officers,
directors and greater than ten percent stockholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file.
The following disclosure is based solely upon a review of the Forms 3 and any
amendments thereto furnished to the Company during the Company's fiscal year
ended September 30, 2000, and Forms 5 and amendments thereto furnished to the
Company with respect to such fiscal year, or written representations that no
Forms 5 were required to be filed by such persons. Based on this review the
following persons who were a director or beneficial owner of more than 10% of
the Company's outstanding Common Stock during such fiscal year filed late
reports on Forms 3.
All of the Directors of the Company, Gregg B. Colton, Don J. Colton and John O.
Anderson each filed one late report on Form 3 after the Company became subject
to the Exchange Act of 1934.
ITEM 10 - EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth all cash
compensation paid, distributed or accrued for services, including salary and
bonus amounts rendered in all capacities for the Company's CEO during the fiscal
years ended, September 30, 2000, 1999, and 1998. All other tables required to be
reported have been omitted as there has been no compensation awarded to, earned
by or paid to any of the executives of the Company that is required to be
reported other than what is stated below:
SUMMARY COMPENSATION TABLE
Name and Amount of Fiscal
Principal Position Compensation Year Ended
Don J. Colton, CEO $90,504(1) 2000
Don J. Colton, CEO $72,403(1) 1999
Don J. Colton, CEO $72,403(1) 1998
(1) The amount of compensation included in the table above for each
fiscal year does not include amounts paid by the Company for the
Company's Employee Stock Ownership Plan. Under the Employee Stock
Ownership Plan 10% of the employees compensation for salary or bonuses
is paid on behalf of the employee for Company stock in the Company's
Employee Stock Ownership Plan. All full-time employees of the Company
participate in the Employee Stock Ownership Plan on the same terms and
conditions as management. For the fiscal years shown above 10% of the
compensation amount above was paid towards the Employee Stock Ownership
Plan in the form of Company stock.
<PAGE>
Below is the options granted in the last two years that are
required to be disclosed under this filing:
OPTION GRANTS IN LAST TWO FISCAL YEARS
% of Total
Number of Options
Securities Granted to
Underlying Employees in Exercise Exp.
Name Options Granted Fiscal Year Price ($/Sh) Date
Don J. Colton, CEO 120,000 28.57% $.30/Share (1)
(1) The expiration date for 60,000 of the 120,000 options granted above
are due to expire on December 31, 2001, and the other 60,000 options
are due to expire on December 31, 2002.
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock by each person or group that
is known by the Company to be the beneficial owner of more than five percent of
its outstanding Common Stock, each director of the Company, each person named in
the Summary Compensation Table, and all directors and executive officers of the
Company as a group as September 30, 2000. Unless otherwise indicated, the
Company believes that the persons named in the table below, based on information
furnished by such owners, have sole voting and investment power with respect to
the Common Stock beneficially owned by them, where applicable.
Title of Name and Address of Amount and Nature Percent
Class Beneficial Owner of Beneficial Owner of Class
Common Don J. Colton 753,019(1) 8.8%
2172 E Gambel Oak Drive
Sandy, Utah 84092
Common Gregg B. Colton 780,928(1) 9.1%
10026 Ridge Gate Circle
Sandy, Utah 84092
Common John O. Anderson 376,532(1) 4.4%
7462 S Parkridge Circle
Salt Lake City, Utah 84121
Common Pioneer Employee Stock 1,623,042(2) 18.97%
Ownership Plan
1225 Fort Union Blvd., #100
Midvale, Utah 84047
All Directors and Officers as a Group
(3 Persons) 1,910,479 22.3%
<PAGE>
(1) Includes currently exercisable options to purchase common stock in
the Company as long as the person is serving as a director and employee
of the Company. Each of the persons listed under this footnote have
options to purchase 120,000 shares of the Company's Common Stock.
(2) Persons listed above have their vested shares under the Pioneer
Employee Stock Ownership Plan included under their name. Don J. Colton
and Gregg B. Colton as Trustees of the Pioneer Employee Stock Ownership
Plan have the right to vote all the shares of the Plan at any
shareholder meeting of the Company.
The Company currently has no arrangements, which may result in a change
of control.
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Board of Directors approved more than 10 years ago a resolution to
allow employees of the Company to purchase 25% of any oil and gas producing
property acquired by the Company at the same time as the Company acquires the
property. The resolution required that the employees pay for 25% of the cost of
the oil and gas properties at the same time the Company purchased the
properties. In the event, the Company is unable to fund the total cost of any
producing properties the employees of the Company may purchase the amount the
Company is unable to fund even if it exceeds 25%. The employees also have the
right to acquire 25% of any non-producing oil and gas leases acquired by the
Company on similar terms as those for producing properties.
The Company also leases office space that is owned by the
Board of Directors. The office space is leased to the Company on terms
reasonable for the same kind of office space in the area that it is located. The
new office space has 1,950 square feet with an unfinished basement of
approximately 975 square feet.
The Board of Directors has also authorized the Company to
repurchase up to 2,000,000 of its common shares as treasury stock during the
next 12 months. The exact timing, price and terms for the purchase of the stock
shall be at the discretion of the officers of the Company.
<PAGE>
PART IV
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
PART F/S FINANCIAL STATEMENTS
The financial statements of the Company as required by Item 310 of
Regulation S-B are included in Part II, Item 7 of this report.
PART III. INDEX TO EXHIBITS
The following Exhibits are filed herewith:
Exhibit No. Description
3(i) Articles of Incorporation (1)
(with amendments)
3(ii) Bylaws (1)
10 Line of Credit Agreement (1)
23 Fall Line Energy letter from
Petroleum Engineer
99 Minutes Approving Employee
Participation in Acquisitions (1)
(1) Incorporated by reference from the Company's 2000 Form 10SB.
REPORTS ON FORM 8-K
One Form 8-K was filed during the fourth quarter 2000 as
referenced above under Item 8 regarding the change of the Company's accountants
for the audit for the year ending September 30, 2000.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
By: /S/
----------------
Don J. Colton
Director/President
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
/S/ Director/President
--------------------
Don J. Colton
/S/ Director/Vice President/Secretary
--------------------
Gregg B. Colton
/S/ Director
--------------------
John O. Anderson
