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U.S. 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, 1996
Commission File No. 33-15528-D
MONUMENT RESOURCES, INC.
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(Exact Name of Small Business Issuer as Specified in its Charter)
Colorado 84-1028449
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(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
513 Wilcox Street, P.O. Box 1450, Castle Rock, Colorado 80104
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(Address of Principal Executive Offices, Including Zip Code)
(303) 688-3993
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Issuer's Telephone Number
Securities Registered Pursuant to Section 12(b) of the Act: None.
Securities Registered Pursuant to Section 12(g) of the Act: None.
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 No X
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B
is not contained in this form, and no disclosure will be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
The Issuer's revenues for its most recent fiscal year were $306,754.
To the best of management's knowledge, no purchases or sales of the issuer's
voting stock have occurred, and no market price for such stock has been
quoted, in the past 60 days. As a result, the issuer is unable to compute the
aggregate market value of the voting stock held by non-affiliates by reference
to the price at which the stock was sold, or to the average bid and asked
prices of such stock, as of a specified date within the past 60 days.
Documents incorporated by reference: None.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
(a) GENERAL DEVELOPMENT OF BUSINESS. The Company was incorporated as
Copper Mountain Ventures, Inc. under the laws of the State of Colorado on
October 1, 1984. The Company's name was later changed to Monument Resource
Development, Inc. and lastly in June, 1987 to Monument Resources, Inc.
The Company sold 172,500 Units, at $2.00 per Unit, in a public offering
which closed in September, 1987. Each Unit consisted of one share of the
Company's Common Stock, one Class A common stock purchase warrant (the "A
Warrants"), and one Class B common stock purchase warrant (the "B Warrants").
The A and B Warrants expired unexercised during September, 1991.
On June 30, 1993, the Company effected a 2 for 1 forward split of the
shares of the Company's outstanding Common Stock. All financial information
and share data in this Form 10-KSB give retroactive effect to this forward
split.
In August 1993, the Company sold 1,152,000 shares of restricted common
stock for $288,000 ($.25 per share) through a private placement. One warrant
was attached and was exercisable at $.25 per share until October 1, 1996. The
Company extended the term of the warrants until July 1, 1997 at an exercise
price of $.25 per share until February 1, 1997 and at $.35 per share from
February 1, 1997 to July 1, 1997. As of December 31, 1996, none of the
1,152,000 warrants have been exercised.
(b) NARRATIVE DESCRIPTION OF BUSINESS. The Company's primary
activities are to search for, acquire, evaluate and market oil and gas and
mineral properties and interests therein. Although the Company has acquired
properties in the past, the Company may not be able to acquire additional
properties in the future because of its limited capitalization and industry
competition. Since exploration, development and production of minerals and
oil and gas typically require substantial amounts of capital, the Company
intends generally not to engage in major exploration and development
activities, except on a carried interest basis. Once an interest in a
property is acquired and is identified as warranting substantial exploration
or development work, the Company's financial condition may require the
obtaining of substantial additional financing to pursue the particular pro-
ject(s). In this situation, the Company will probably attempt to sell, lease,
or joint venture its interest and retain an overriding royalty, net smelter
return royalty, net operating profits royalty or other interest. It is likely
that the Company will be required to give up significant interests in its
properties in such cases. The Company has recently acquired producing and
other oil and gas properties in exchange for its restricted common stock and
plans to continue this endeavor if the opportunity presents itself.
MINERAL EXPLORATION AND DEVELOPMENT
In the past, the Company's activities have involved the evaluation of a
number of mineral properties which resulted in the acquisition of interests in
two undeveloped mineral prospects located in Colorado and Montana. The
Colorado prospect consisted of 5 unpatented lode claims covering approximately
100 gross and net acres. The Colorado prospect was abandoned in 1996 due to
its remoteness and lack of third party interest in the project area. The
Montana prospect consists of 80 acres of fee land (including minerals) and
100% of the mineral rights to 280 surrounding acres, all owned by the Company.
Neither of the prospects has any proven or probable mineral reserves.
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During 1994, the Company acquired interests in four diamond and gold
prospects in Canada: a 30% interest in the Surprise River diamond prospect, a
20% interest in the Hunter 2 claim block, the Alberta gold and diamond
prospect, and the Wisconsin Mine (gold) property. Interests were acquired by
payments of various amounts of cash and by the issuance of the Company's
Common Stock and are subject to varying work commitments and/or future royal-
ties.
During 1995, the Company determined that the Surprise River, Hunter 2
and Alberta Gold projects were not appropriate for the Company's further
participation, and subsequently these projects have been written off for
financial statement purposes.
OIL AND GAS EXPLORATION AND DEVELOPMENT
During 1995, the Company acquired interests in two oil and gas projects,
the Grant gas project in Perkins County, Nebraska, and three producing oil
wells in Kimball County, Nebraska. The Grant gas project consisted of
approximately 23,000 acres of leases in which the Company has a 100% leasehold
interest. The Company had optioned 2,400 acres of these leases to O'Brien
Resources Corp. O'Brien was to drill and complete a total of 15 wells to the
Niobrara formation by June 1, 1996, to earn its interest. During fiscal 1996,
O'Brien Resources Corp. drilled, completed and shut-in two gas wells on the
prospect but failed to drill the additional 13 wells and thus relinquished its
interest in the property. The Company is evaluating the potential of acquiring
the ownership of the two shut-in gas wells which are now held by a third
party. Based on the questionable results of the prospect wells, the Company
chose not to pay the rentals due on a majority of the additional acreage,
reducing the current acreage held in the prospect to approximately 5,000
acres. At September 30, 1996 the Company wrote-off its remaining interest of
$58,342 in the Grant gas project. The three producing oil wells in Kimball
County are located near the Kleinholz field. The Company's interest in these
three wells varies from a 3.33% to a 7.5% net revenue interest. The Company
plans to evaluate additional producing wells in the area for potential
purchase.
As of April 1, 1996, the Company acquired three oil and gas properties
from Powerhouse Resources, Inc. in exchange for $225,000 in cash and three
million shares of the Company's restricted common stock. The three properties
acquired were: (1) the Galvin Ranch oil and gas prospect in Webb County,
Texas, (2) the Leavenworth County, Kansas gas wells and pipeline system, and
(3) the East Voss oil waterflood project in Knox County, Texas. The purchase
was valued by the Company for accounting purposes at $2,600,0000. (See
"Financial Statements.")
The Company analyzes and evaluates a number of properties each year as a
part of its business plan. If a property at any stage appears, based on
management's criteria, to lack favorable parameters, the Company may decide
that no further Company expenditures should be made. The Company intends to
abandon, sell or otherwise dispose of certain properties rather than incur
expensive holding costs.
PROSPECT GENERATION METHODS
In order to identify and acquire oil and gas and mineral properties, the
following approach to prospect generation is utilized:
INTERNAL GENERATION OF PROSPECTS. Utilizing the combined years of
experience of the Company's management, the Company attempts to generate
prospects internally. In doing so, the Company may also retain outside
consultants who are specialists in certain geographic areas.
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SCREENING OF PROPERTY SUBMITTALS. Submittals of prospects are
encouraged from property owners and other persons in the industry. These
prospects are evaluated by the Company's management after a thorough review of
available data.
RESEARCH. The Company's management reviews and evaluates geologic and
other industry literature with respect to new techniques and developments that
may result in the identification of potential properties which the Company may
then evaluate.
PLANNED OPERATIONS
The Company's business plan has been designed to determine whether the
Company's present and future prospects contain any valuable oil and gas or
mineral deposits. The activities necessary to accomplish this plan are
expected to consist of one or more of the following:
1. Preliminary examinations of prospects, which includes initial
review of county and federal land records with respect to title, onsite
inspection of the property, field reconnaissance, study of surrounding
properties, literature review and a determination of the best access to the
property. This work is normally completed by the Company prior to the
decision to acquire a specific property.
2. Engineering evaluation and reserve studies, mapping of the
properties and preparation of geological, geophysical and geochemical maps and
reports.
3. For mineral properties, sampling and assaying of any existing mine
workings and rock exposures.
The Company's business is directed toward identifying oil and gas and
mineral properties for possible acquisition. Selected properties are
evaluated by the Company and a decision made as to whether or not a particular
property fits into the Company's goals. In some cases, selected properties
may need considerable additional work such as drilling, recompletion,
geophysics and/or sampling. In other cases, properties may already have been
more or less evaluated by others or had histories of past production. In
either case, management believes it is the role of the Company to evaluate all
existing data, generate new ideas and conduct sufficient work to enhance any
selected property's overall value. At some point, depending on many factors
which are unique to a specific prospect, the Company attempts to acquire or
gain a significant interest in a property. The Company thereafter attempts to
lease, sell, or enter into a joint venture or other cost sharing arrangement
relating to the property. In some cases, the Company may attempt to raise
substantial additional funds through debt, equity or other form of financing
arrangement. No assurance can be given that a specific property can be sold
on terms favorable to the company or that sufficient additional financing can
be obtained. To the extent that the Company enters into a cost-sharing
arrangement with respect to a property, it is likely that the company will be
required to give up a significant part of its interest in the property.
PRINCIPAL PRODUCTS PRODUCED AND SERVICES RENDERED
The Company's products during fiscal 1996 were crude oil, natural gas
and other petroleum products. Crude oil, natural gas and other petroleum
products are generally sold to various producers, including pipeline
companies, which usually service the area in which the producing wells are
located. In the fiscal year ended September 30, 1996, crude oil and natural
gas sales and related revenues accounted for $88,786 or 29% of the Company's
revenues, while $187,546
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or 61% was income from the sale of investments. The Company is not receiving
any mineral revenues.
DISTRIBUTION METHODS OF THE PRODUCTS AND SERVICES
Not applicable.
STATUS OF ANY PUBLICLY-ANNOUNCED NEW PRODUCTS OR SERVICES
There has been no public announcement of, and no information otherwise
has been made public about, a new product or service which would require the
investment of a material amount of the Company's assets, or which otherwise is
material.
COMPETITIVE CONDITIONS
The exploration for and development and production of oil, gas and other
minerals are subject to intense competition. The principal methods of
competition in the industry for the acquisition of oil, gas and mineral leases
and producing properties are the payment of cash bonus payments at the time of
acquisition of leases, delay rentals, location damage supplement payments, and
stipulations requiring exploration and production commitments by the lessee.
Companies with greater financial resources, existing staff and labor forces,
equipment for exploration, and vast experience are in a better position than
the company to compete for such leases. In addition, the ability of the
Company to market any oil and gas which it might produce could be severely
limited by its inability to compete with larger companies operating in the
same area, which may be willing or able to offer any oil and gas produced by
them at a price lower than that of the Company. Exploration and production
costs of minerals, particularly precious metals, may impede the ability of the
Company to offer such production at competitive prices.
In addition, the availability of a ready market for oil and gas will
depend upon numerous factors beyond the Company's control, including the
extent of domestic production and imports of oil and gas, proximity and
capacity of pipelines, and the effect of federal and state regulation of oil
and gas sales, as well as environmental restrictions on exploration and usage
of oil and gas. Further, it must be expected that competition for leasing of
oil and gas prospects will become even more intense in the future. The Company
has a minimal competitive position in the oil and gas industry.
The acquisition of mining claims prospective for precious metals or
other minerals is subject to intense competition from a large number of
companies and individuals. The ability of the Company to acquire additional
leases or additional mining claims could be curtailed severely as a result of
this competition.
The principal methods of competition in the industry for the acquisition
of mineral leases is the payment of bonus payments at the time of acquisition
of leases, delay rentals, advance royalties, the use of differential royalty
rates, the amount of annual rental payments and stipulations requiring
exploration and production commitments by the lessee. Companies with far
greater financial resources, existing staff and labor forces, equipment for
exploration and mining, and vast experience will be in a better position than
the Company to compete for such leases.
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SOURCES AND AVAILABILITY OF RAW MATERIALS
Raw materials requisite to the transaction of the Company's business
include such items as drilling rigs and other equipment, casing pipe, drilling
mud and other supplies, core drilling equipment and mining equipment. Such
items are commonly available from a number of sources and the Company foresees
no short supply or difficulty in acquiring any raw materials relevant to the
conduct of its business.
DEPENDENCE UPON ONE OR A FEW MAJOR CUSTOMERS
In the oil and gas segment of the Company's business, two companies in
fiscal 1996 represented sales in excess of 10% of the Company's total oil and
gas revenues for the fiscal year. The availability of oil and gas purchasers
is such, however, that any buyer discontinuing purchases from the Company
could almost assuredly be replaced by another buyer.
PATENTS, TRADEMARKS, LICENSES, FRANCHISES, CONCESSIONS, ROYALTY AGREEMENTS OR
LABOR CONTRACTS, INCLUDING DURATION
The Company does not own any patents, licenses, franchises or
concessions except oil, gas and other mineral interests granted by
governmental authorities and private landowners.
NEED FOR GOVERNMENT APPROVAL OF PRINCIPAL PRODUCTS OR SERVICES
Not applicable.
EFFECT OF EXISTING OR PROBABLE GOVERNMENTAL REGULATION
Oil and gas exploration and production, as well as mining activities,
are open to significant governmental regulation including worker health and
safety laws, employment regulations and environmental regulations. Operations
which occur on public lands may be subject to further regulation by the Bureau
of Land Management, the U.S. Army Corps of Engineers or the U.S. Forest
Service.
ESTIMATE OF AMOUNTS SPENT ON RESEARCH AND DEVELOPMENT ACTIVITIES
The Company has not engaged in any material research and development
activities since its inception.
COSTS AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS (FEDERAL, STATE AND
LOCAL)
Because the Company is engaged in exploiting natural resources, it is
subject to various federal, state and local provisions regarding environmental
and ecological matters. Therefore, compliance with environmental laws may
necessitate significant capital outlays, may materially affect the Company's
earnings potential, and could cause material changes in the Company's proposed
business. At the present time, however, the existence of environmental laws
does not materially hinder nor adversely affect the Company's business.
Capital expenditures relating to environmental control facilities have not
been material to the operations of the Company since its inception.
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EMPLOYEES AND CONSULTANTS
The Company currently has one full-time officer, A. G. Foust, President,
and a part-time office secretary. Stewart A. Jackson, one of the Company's
directors, also spends some of his time on the Company's business. The
Company may hire additional personnel as required by its operations and may
also engage the services of geological and engineering consultants from time
to time to assist in its operations.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company has interests in a number of oil and gas projects and one
undeveloped gold and silver prospect in the United States, and one undeveloped
gold property in British Columbia, Canada.
The following subsections set forth information concerning each of the
Company's prospects.
OIL AND GAS PROSPECTS
GALVIN RANCH PROPERTY, WEBB COUNTY, TEXAS
The Company acquired an interest in this property from Powerhouse
Resources, Inc. as of April 1, 1996. The property consists of approximately
60,000 acres of oil and gas leases. The Company's original interest consisted
of a 15% working interest and a 2% overriding royalty in the leases. During
May, 1996, the Company sold a portion of its interest in the property for
$565,000 cash and retains a 15% working interest and a 2% overriding royalty
in approximately 13 producing gas wells plus a 2% working interest and a 0.35%
to 0.76% overriding royalty on the balance of the acreage.
KANSAS GAS PROJECT - LEAVENWORTH COUNTY, KANSAS
The Company acquired an interest in this property from Powerhouse
Resources, Inc. as of April 1, 1996. The project consists of approximately
2,000 acres of oil and gas leases with right-of-ways and approximately 30
producing gas wells, over 15 miles of a gas gathering and pipeline system, and
necessary equipment and facilities to produce and market the gas production.
Currently the wells are producing an aggregate of approximately 300 MCFPD.
Management believes a modest workover program will maintain the production at
an acceptable level of profitability.
EAST VOSS WATERFLOOD - KNOX COUNTY, TEXAS
The Company acquired an interest in this property from Powerhouse
Resources, Inc. as of April 1, 1996. The property consists of approximately
330 acres of unitized oil and gas leases containing 21 oil and injection
wells. The field is currently on a standby status and the Company is seeking
an industry partner to develop the secondary waterflood potential of the
project.
GRANT GAS PROSPECT - PERKINS COUNTY, NEBRASKA
During May 1995, the Company acquired a 100% leasehold interest on
approximately 23,000 acres of undeveloped oil and gas leases for $25,000 in
cash and 175,000 shares of restricted common stock. The property is
prospective for Niobrara Formation gas and is adjacent to an existing gas
transmission line. The leases have a net revenue interest of approximately
84% and they expire in 2000
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subject to the payment of delay rentals of $1.00 per acre per year. Most of
the delay rental payments were due during March, April and May of 1996. The
Company had optioned leases covering 2,400 acres to O'Brien Resources Corp.
pursuant to an agreement that provided that O'Brien must drill 15 wells by
June 1, 1996 to earn its interest. During fiscal 1995, O'Brien drilled, cased
and shut-in two gas wells and then decided not to continue the project and
relinquished its interest. Based on the inconclusive results of O'Brien's two
wells, the Company elected not to pay the rentals due on approximately 18,000
acres and thus the current acreage held by the Company in the prospect is
approximately 5,000 (2,400 acres are held by the shut-in gas wells). The
Company is evaluating the potential of the two shut-in wells for possible
acquisition from a third party and it will then determine the future of the
prospect.
KIMBALL COUNTY, NEBRASKA.
During November, 1995 the Company purchased interests in three producing
oil wells in Kimball County, Nebraska for $22,000. The Company's net revenue
interests in the three wells are 7.50%, 3.93% and 3.33%. These wells were
drilled approximately 3 years ago and are currently generating a total of
approximately $1,000 per month cash flow to the Company.
GOLD MINING PROSPECTS
GROUSE PARK PROSPECT, MINERAL COUNTY, COLORADO.
This prospect consisted of 5 unpatented lode mining claims covering
approximately 100 acres. It is located in unsurveyed Sections 21, 22, 27, 28
and 33, Township 40 North, Range 1 East. Due to the remoteness of the
prospect, and failure to interest third party investments in the area, the
Company abandoned the prospect in 1996.
DOBLER MINE PROSPECT, BROADWATER COUNTY, MONTANA.
Monument purchased a 100% ownership in a certain mining property in
Broadwater County, Montana, known as the Dobler Mine prospect. The prospect
consists of 80 acres of fee land (including minerals) and mineral rights to
280 surrounding acres which the Company acquired during 1989 by exercising an
option it held.
The prospect's abandoned mine is located on the old Dobler Ranch and was
discovered by Leopold Dobler, the original owner, around the turn of the
century. Based upon unconfirmed reports by unaffiliated third parties, it
appears that an inclined shaft was started and hand mining by the Doblers
began in 1910; the first shipment to the smelter was made in 1911. The mine
was optioned to an individual in 1912 and at that time shaft sinking equipment
and mining machinery was installed. Operations continued periodically until
1915 when the mine was allowed to flood and mining was not resumed until 1932
when electric power and pumps were installed and several shipments were made
to the smelter by a family enterprise known as Dobler Mines, Inc. The mine
was inactive until 1935 when limited operations were continued for a short
time. The mine has since been inactive.
The Company believes that this property is prospective for gold and
silver for a high grade underground mine and low grade open pit operation. In
addition, the Company is assessing the property's potential real estate value.
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WISCONSIN PROPERTY, NEAR KOOTENAY LAKE, B.C., CANADA
The Company has acquired, in exchange for 110,000 shares, a 100%
interest in the Wisconsin Gold Prospect located on the west side of Kootenay
lake in the Nelson Mining District, B.C. The property consists of two Crown
granted mineral claims totaling 25.84 hectares (63.85 acres) plus ten
surrounding located mineral claims.
Underground development and drilling have established a steeply inclined
gold-bearing sulphide barite-quartz vein system containing a resource tonnage
potential estimated at 400,000 tons grading about 4 grams per ton of gold and
35 grams per ton of silver. This material occurs in a zone 2.5 meters in
average width, 350 meters in strike length and dip extent of 150 meters. The
deposit is open to depth and the potential for parallel zones exists within
the property.
Reevaluation of all data including drilling and mining records, plus
field examination, was undertaken in 1995. The Company plans to hold this
property for future joint venture or development upon an increase in gold
prices. In addition, the property has a residual value for its real estate
potential.
DIAMOND PROSPECTS
BOTSWANA DIAMOND PROJECT
In July 1993, the Company acquired a 25% interest in three target areas
covered by fourteen separate prospecting licenses in the Republic of Botswana
in the central southern portion of the continent of Africa.
The Company entered into agreements with Layfield Resources Inc. and
Kingswood Resources Inc. covering exploration on these licenses. Ownership of
the licenses was (I) the Company - 25%; Layfield - 25%; and Kingswood - 50%.
The Company paid $6,250 to acquire the rights to information on which filing
of licenses was based and in May 1994 issued 50,000 shares of its Common Stock
pursuant to this agreement.
In 1994, the Company expended $28,762 in exploration costs and exchanged
its interest in the prospect for 1,500,000 shares of common stock in Southern
Africa Mineral Corporation, a Canadian public company ("SAF").
In 1995, the Company sold 1,300,000 shares of common stock of SAF to
Layfield Resources, Inc. ("Layfield") in exchange for 3,500,000 shares of
common stock of Layfield and $113,405 (U.S.) in cash pursuant to a Letter
Agreement dated May 10, 1995, and signed by the Company, Layfield and Yorkton
Securities, Inc. ("Yorkton"). The Agreement also required that Yorkton would
immediately purchase from the Company 1,000,000 of Layfield's shares for
$291,223 (U.S.) (See Notes to Financial Statements.")
In 1996, the Company sold 500,000 shares of Layfield common stock for
$187,546. The Company plans to hold the balance of its Layfield and Southern
Africa Mineral Corporation shares (2,000,000 and 200,000) and market them at
an appropriate time.
NEW MINERAL PROSPECTS
The Company continues to pursue the evaluation of a number of oil and
gas and mineral prospects. During their respective careers, management has
made numerous contacts in the oil and gas and mining industry and has
accumulated
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knowledge concerning location, current ownership, and other information with
respect to prospects. Based on this experience and knowledge, management
believes that the Company will be able to continue evaluation of prospects on
an efficient basis. Even if properties are acquired, substantial additional
financing will be required to pursue particular projects. The Company's
primary emphasis is directed toward oil and gas and precious metals properties
although other situations and minerals may be examined.
In addition to work on currently owned prospects, efforts are being made
to add new prospects. Areas of known favorability for oil and gas and
minerals are being studied. Prospect evaluation will be an ongoing effort,
utilizing data generated from a number of sources.
PRODUCTION INFORMATION
NET PRODUCTION, AVERAGE SALES PRICE AND AVERAGE PRODUCTION COSTS
(LIFTING)
The table below sets forth the net quantities of oil and gas production
(net of all royalties, overriding royalties and production due to others)
attributable to the Company for the fiscal year ended September 30, 1996 and
the average sales prices, average production costs and direct lifting costs
per unit of production.
<TABLE>
<CAPTION>
<S> <C>
Net Production Year Ended September 30, 1996
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Oil (Bbls) 978
Gas (Mcf) 71,171
Average Sales Prices
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Oil (per Bbl) $17.84
Gas (per Mcf) $ 2.74
Average Production Cost<FN1>
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Per equivalent MCF of gas $ 3.29
Average Listing Costs<FN2>
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Per equivalent MCF of gas $ 2.38
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<FN>
<FN1>
Production costs include all expenses, depreciation, depletion and
amortization, lease operating expenses and all associated taxes.
<FN2>
Direct lifting costs do not include impairment expense, ceiling writedown or
depreciation, depletion and amortization.
</FN>
</TABLE>
RESERVE INFORMATION
OIL AND GAS RESERVES
Oil and gas reserves for the Company's properties have been evaluated at
September 30, 1996 by Resource Services International, Inc.
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RESERVE CALCULATIONS BY INDEPENDENT PETROLEUM ENGINEERS INVOLVE THE ESTIMATION
OF FUTURE NET RECOVERABLE RESERVES OF OIL AND GAS AND THE TIMING AND AMOUNT OF
FUTURE NET REVENUES TO BE RECEIVED THEREFROM. THOSE ESTIMATES ARE BASED ON
NUMEROUS FACTORS, MANY OF WHICH ARE VARIABLE AND UNCERTAIN. RESERVE
ESTIMATORS ARE REQUIRED TO MAKE NUMEROUS JUDGMENTS BASED UPON PROFESSIONAL
TRAINING, EXPERIENCE AND EDUCATIONAL BACKGROUND. THE EXTENT AND SIGNIFICANCE
OF THE JUDGMENTS IN THEMSELVES ARE SUFFICIENT TO RENDER RESERVE ESTIMATES
INHERENTLY IMPRECISE. SINCE RESERVE DETERMINATIONS INVOLVE ESTIMATES OF
FUTURE EVENTS, ACTUAL PRODUCTION, REVENUES AMD OPERATING EXPENSES MAY NOT
OCCUR AS ESTIMATED. ACCORDINGLY, IT IS COMMON FOR THE ACTUAL PRODUCTION AND
REVENUES LATER RECEIVED TO VARY FROM EARLIER ESTIMATES. ESTIMATES MADE IN THE
FIRST FEW YEARS OF PRODUCTION FROM A PROPERTY ARE GENERALLY NOT AS RELIABLE AS
LATER ESTIMATES BASED ON A LONGER PRODUCTION HISTORY. RESERVE ESTIMATES BASED
UPON VOLUMETRIC ANALYSIS ARE INHERENTLY LESS RELIABLE THAN THOSE BASED ON
LENGTHY PRODUCTION HISTORY. ALSO, POTENTIALLY PRODUCTIVE GAS WELLS MAY NOT
GENERATE REVENUE IMMEDIATELY DUE TO LACK OF PIPELINE CONNECTIONS AND POTENTIAL
DEVELOPMENT WELLS MAY HAVE TO BE ABANDONED DUE TO UNSUCCESSFUL COMPLETION
TECHNIQUES. HENCE, RESERVE ESTIMATES MAY VARY FROM YEAR TO YEAR.
ESTIMATED PROVED RESERVES
The following tables set forth the estimated proved developed oil and
gas reserves and proved undeveloped oil and gas reserves of the Company for
the years ended September 30, 1995 and 1996. See Note 12 to the Consolidated
Financial Statements and the above discussion.
Proved Reserves Oil (Bbls) Gas (Mcf)
-------------------------------------- --------- ---------
(in thousands)
Estimated quantity, September 30, 1995 - -
Sale of reserves - (3,288)
Revision of previous estimates - -
Acquisition of properties 173 7,524
Production - (32)
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Estimated quantity, September 30, 1996 173 4,204
------- ---------
------- ---------
DEVELOPED AND UNDEVELOPED RESERVES
Developed Undeveloped Total
--------- ----------- ----------
(in thousands)
Oil (Bbls)
September 30, 1996 173 173
Gas (Mcf)
September 30, 1996 1,138 3,066 4,204
TITLE
OIL AND GAS
As is customary in the oil and gas industry, the Company performs only a
perfunctory title examination at the time of acquisition of undeveloped
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properties. Prior to the commencement of drilling, in most cases, and in any
event where the Company is the Operator, a thorough title examination is
conducted and significant defects remedied before proceeding with operations.
The Company believes that the title to its properties is generally acceptable
to a reasonably prudent operator in the oil and gas industry. The properties
owned by the Company are subject to royalty, overriding royalty and other
interests customary in the industry, liens incidental to operating agreements,
current taxes and other burdens, minor encumbrances, easements and
restrictions. The Company does not believe that any of these burdens
materially detract from the value of the properties or will materially
interfere with their use in the operation of the Company's business.
The Company has purchased producing properties on which no updated title
opinion was prepared. In such cases, the Company has retained third party
attorneys to review title.
MINING
The Company does not have title opinions on its mining claims or leases
and, therefore, has not identified potential adverse claimants nor has it
quantified the risk that any adverse claimant may successfully contest all or
a portion of its title to the claims. Furthermore, the validity of all
unpatented mining claims is dependent upon inherent uncertainties such as the
sufficiency of the discovery of minerals, proper posting and marking of
boundaries, and possible conflicts with other claims not determinable from
descriptions of record. In the absence of a discovery of valuable minerals,
a mining claim is open to location by others unless the claimant is in actual
possession of and diligently working the claim (pedis possessio). No
assurance can be given with respect to unpatented mining claims in the
exploratory stage that a discovery of a valuable mineral deposit will be made.
To maintain ownership of the possessory title created by an unpatented
mining claim against subsequent locators, the locator or his successor in
interest must pay an annual fee of $100 per claim. Title examinations for a
particular claim will be made when and if a significant discovery is made on
that claim.
OFFICE FACILITIES
The Company's Castle Rock, Colorado office consists of approximately 300
square feet and has been leased from an unaffiliated third party for $300 per
month on a month-to-month basis since September 6, 1989. In addition, the
Company maintains offices on a month-to-month basis in downtown Denver,
Colorado at a cost of $1,500 per month.
ITEM 3. LEGAL PROCEEDINGS.
The Company knows of no material pending legal proceedings to which the
Company is a party or of which any of its properties is the subject and no
such proceedings are known to the Company to be contemplated by governmental
authorities. The Company knows of no legal proceedings pending or threatened,
or judgments entered against, any Director or Officer of the Company in his
capacity as such.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a shareholder vote during the fourth
quarter of the fiscal year ended September 30, 1996.
-12-
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) MARKET INFORMATION. The Company's Common Stock was traded on the
over-the-counter market until November 1992. The Common Stock has not been
quoted since November 1992.
(b) HOLDERS. The estimated number of beneficial owners of the
Company's common stock at January 24, 1997, was approximately 145.
(c) DIVIDENDS. Holders of common stock are entitled to receive such
dividends as may be declared by the Company's Board of Directors. No
dividends have been paid with respect to the Company's common stock and no
dividends are anticipated to be paid in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1995, the Company had $446,954 in current assets and
$441,779 in working capital. As of September 30, 1996, the Company had
$953,509 in current assets and $876,758 in working capital. The increase from
September 30, 1995 to September 30, 1996, in working capital was due to the
sale of a portion of the Company's interest in Layfield Resources, Inc.
("Layfield") and sale of a portion of the Galvin Ranch oil and gas prospect in
Webb County, Texas. Proceeds from these sales were reinvested in oil and gas
properties and short-term U.S. government securities.
At the present time, the Company's primary source of cash for operations
and exploration is its current working capital, and cash which can be raised
by selling shares of SAF or Layfield and its investment in debt securities.
The Company has, in the past and plans in the future, to rely on joint venture
partners or equity funding to supply most of the funds needed to evaluate and
develop its properties. Any inability of the Company to raise additional
capital through a stock offering, to liquidate its securities holdings or
obtain third party funding may limit development of most of its properties.
Although the Company intends to use joint venture or equity funding to
explore, acquire and, if warranted, develop its properties, the natural
resource business is nevertheless very capital intensive.
Based upon the Company's current status and plans, approximately $75,000
will be needed in 1997 to fund necessary holding expenses on the Company's
properties.
The Company continues to seek joint venture financing for its properties
and to acquire properties with near term revenue generating capability.
Management's efforts to evaluate, identify and/or acquire such revenue
generating prospects and to further develop its existing properties have been
ongoing during this past year and, while management is optimistic, there is no
assurance that the Company will be successful in securing the required
capital.
RESULTS OF OPERATIONS
The Company's revenues declined from $371,055 in 1995 to $306,759 in
1996. The decline was due to the $175,423 decrease in gain on sale of
investments from
-13-
<PAGE>
1995 to 1996, since the Company did not liquidate as many of the securities it
held in 1996. This decline was offset by the addition of $88,786 in revenue
from oil and gas sales for the oil and gas properties acquired by the Company
during the fiscal year. Interest income also increased by $22,341 due to the
additional interest bearing securities held by the Company.
The Company's statement of operations shows expenses of general and
administrative costs of $125,601 in fiscal 1996 compared to $110,173 in fiscal
1995. The inrease in general and administrative expense was due to the legal
and accounting costs associated with the acquisition of the oil and gas
properties from Powerhouse Resources, Inc. Abandonment of mineral and oil and
gas properties and exploration costs increased from $42,229 in fiscal 1995 to
$64,246 in fiscal 1996. The Company abandoned one mineral prospect and a
portion of an oil and gas prospect in fiscal 1996 due to disappointing
exploration results and three Canadian properties were abandoned in fiscal
1995. Such abandonment will most likely be an ongoing process as the Company
continues to attempt to upgrade its property inventory. The Company follows
the accounting policy of deferring all acquisition and exploration expenses
associated with its mining properties. Accordingly, these costs are not
reflected as current expenses but are rather capitalized on the Company's
balance sheet. Relating to oil and gas, the Company follows the successful
efforts method of accounting policy. The Company's oil and gas operations had
expenses of $75,938 in 1996 compared to no oil and gas operating expenses in
1995.
ITEM 7. FINANCIAL STATEMENTS.
The Report of the Independent Certified Public Accountants appearing at
Page F-1 and the Financial Statements and Notes to Financial Statements
appearing at Pages F-2 through F-21 hereof are incorporated herein by
reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
-14-
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The Directors and Officers of the Company are as follows:
Served as a
Name Age Position Director Since
A. G. Foust 53 President and a October 1, 1984
Director
Stewart A. Jackson 54 Director January 1, 1992
Dru E. Campbell 45 Secretary N/A
John J. Womack 76 Director June 20, 1986
Dennis C. Dowd 55 Director April 5, 1996
All Directors of the Company will hold office until the next annual
meeting of stockholders or until their successors have been elected and
qualified. The Officers of the Company, who are appointed at the annual
meeting of the Board of Directors, hold office until their successors are
chosen and qualified, or until their death, resignation or removal. The
Company presently has no audit, nominating or executive committee or
committees performing substantially similar functions.
The business experience and principal occupations of each Director and
Officer of the Company for at least the past five years are as follows:
A. G. Foust has been President of the Company since May 1995, and he has
been a Director since its inception. He also served as President of the
Company since its inception in 1984 until September 1993. From June of 1984
to June of 1986, he was employed as a licensed registered representative and
Vice President of Corporate Finance of B. J. Leonard & Company, Inc., a
brokerage firm located in Denver, Colorado. From January, 1976 to May, 1984,
he was President and Director of Minerals Engineering Company, a corporation
with a class of equity securities registered under the Securities Exchange Act
of 1934. Minerals Engineering Company, now a wholly-owned subsidiary of Hecla
Mining Co., is in the mining business. Mr. Foust has over 30 years of
experience in the natural resources industry. From April, 1972 through
January, 1976, he served as Assistant Vice President and Loan Officer of the
First National Bank of Denver. His responsibilities as a loan officer
included providing financial services for natural resource and mining
companies. From November, 1969 to April, 1972, he was operations manager at
Chorney Oil Company, a privately owned oil and gas exploration and production
company, and was responsible for all drilling completions, production and
engineering. From 1968 through 1969, he served as a consulting engineer
associated with Minerals Management, Inc., Casper, Wyoming. From April, 1968
through November, 1968, he served as District Engineer of Consolidated Oil and
Gas, Inc., operating out of Denver, Colorado. From June, 1964 through April,
1968, Mr. Foust was employed as a chemical project engineer with Shell Oil
Company, designing and supervising production of water and chemical flood
installations. Mr. Foust has a B.S. degree in Chemical Engineering from
Montana State University.
-15-
<PAGE>
Stewart A. Jackson was President of the Company from September 1993
until May, 1995 and has been a Director since early 1992. He had also served
as a director of Layfield Resources, Inc., a publicly-held company listed on
the Vancouver Stock Exchange, from 1993 to May 1995. Mr. Jackson has 31 years
experience in the mineral industry and has been associated with the Company in
a geological consulting capacity for the past two years and as a Director
since January 1, 1992. He is actively involved in exploration and development
of both base and precious metal deposits in a wide range of environments for
both large and small companies. He was responsible for the discovery and
development of several major mineral discoveries, including the Red Dog multi-
billion dollar zinc deposit in northwestern Alaska for Cominco Resources,
Inc., where he was Supervisory Geologist from 1969 to 1977. He was involved
in the discovery and development of the Borealis, South McCoy and Manhattan
gold deposits in Nevada for Houston Oil and Minerals where he held the
position of Manager-Minerals Exploration from 1977 to 1981. He formed Crown
Resource Corp. in 1981 and acted as President of that Company until 1987.
Crown Resource Corp. (now Crown Resources Corporation) currently has three
major gold discoveries in production and several other gold deposits under
development. He raised $20 million for the discovery and development of these
and other properties before leaving Crown. He is currently involved in
exploration and development projects including gold, silver, diamonds and base
metals. Mr. Jackson earned a Bachelor of Science degree in Geology from the
University of Western Ontario, Master of Science degree in Stratigraphy and
Mineral Deposits from the University of Toronto and a Ph.D. in Stratigraphy
and Economic Geology from the University of Alberta. In addition to these
accomplishments, he has also been author and co-author of numerous geologic
publications and received prestigious awards for some. Mr. Jackson resigned
as President in May 1995, in order to devote more of his time to his foreign
mining activities and is currently on the Board of a number of Canadian mining
companies.
Dru E. Campbell has been employed by the Company on a full and part-time
basis since its inception as the office secretary. Ms. Campbell was appointed
to fill the position of Secretary of the Corporation in January of 1989 when
Mr. Beeder resigned. Ms. Campbell has over 23 years office and secretarial
experience.
John J. Womack retired in early 1982 as Adjutant General and Director of
Military Affairs, Department of Defense, State of Montana, a position he had
held since 1969. General Womack holds a B.A. degree (1947) and a M.A. degree
(1955) from Western Montana College. In 1954 he formed Pacific Mining and
Exploration Company, which developed the Carter Creek iron property in Madison
and Beaverhead Counties, Montana. In 1962 he formed Southmont Exploration
Company to explore Beaverhead County, Montana for tungsten. In 1980 and 1981,
he owned and supervised operations for a heap leach gold venture at the
Franklin Mine in Lewis and Clark Counties, Montana. From 1971 through June,
1984, he was a Director of Minerals Engineering Company. General Womack has
been retired since June, 1984.
Dennis C. Dowd became a director of the Company on April 5, 1996. He is
the President of Powerhouse Resources, Inc., a company which is involved in
the building of small power stations in China. A substantial portion of the
Company's oil and gas assets were purchased from a wholly-owned subsidiary of
Powerhouse in an exchange of cash and stock. Powerhouse currently owns
3,000,000 shares of the Company's common stock and Mr. Dowd represents
Powerhouse on the Company's Board of Directors. Mr. Dowd is also registered
as a securities broker with Cohig & Associates and was registered with John C.
Kinnard from 1988 to 1995. Mr. Dowd served as President of B.J. Leonard & Co.
(1986-1988) and was senior Vice President from 1980 to 1985. Mr. Dowd entered
the securities
-16-
<PAGE>
business in 1966 with Bosworth Sullivan and Company (Dain Bosworth). Mr. Dowd
has served on the NASD Arbitration Committee since 1986 and served as a member
of the NASD District No. 3 Business Conduct Committee from 1988 to 1991. Mr.
Dowd attended Regis University, Denver, Colorado, where he received a Bachelor
of Science Degree in business in 1963.
No family relationship exists between or among any of the persons named
above except that A. G. Foust and Dru Campbell are married to each other.
None of the Company's Directors are directors of any other company having a
class of equity securities registered under the Securities Exchange Act of
1934 or any company registered as an investment company under the Investment
Company Act of 1940, except Dennis Dowd who is also an officer and director of
Powerhouse Resources, Inc. which is registered under the Securities Act of
1934. There are no arrangements or undertakings between any of the named
Directors and any other persons pursuant to which any Director was selected or
nominated as a Director. All persons whose activities will be material to the
operations of the Company have been described herein.
The Company's Directors, Officers and 10% or greater shareholders are
not presently subject to Section 16(a) of the Exchange Act.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth information regarding executive
compensation for the Company's President and Chief Executive Officer. No
executive officer received compensation in excess of $100,000 for either of
the years ended September 30, 1995 and 1996.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
Other All
Annual Restricted Options/ Other
Name and Principal Fiscal Compen- Stock SARs LTIP Compen-
Position Year Salary Bonus sation Award(s) (Number) Payouts sation
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A. G. Foust, 1995 $ 6,000 -0- -0- -0- -0- -0- -0-
President and 1996 $30,000 -0- -0- -0- -0- -0- -0-
Chief Executive
Officer
</TABLE>
OPTION/SAR GRANTS IN FISCAL YEAR ENDED SEPTEMBER 30, 1996
Percent of
Total Options/
Options/ SARs Granted Exercise
SARs to Employees or Base
Name (Number) in Fiscal Year Price ($/Sh) Expiration Date
A. G. Foust -0- N/A N/A N/A
At the present time, the Company has no retirement, pension or profit
sharing programs for the benefit of its employees. However, the Company, in
its discretion, may adopt one or more of such programs in the future.
-17-
<PAGE>
INDEMNIFICATION
Pursuant to its Bylaws and the Colorado Corporation Code, the Company
shall indemnify each Director and Officer against expenses, judgments, fines,
and amounts paid in settlement actually and reasonably incurred by him in
connection with any action, suit or proceeding which he may be made a party by
reason of his being or having been made a Director or Officer of the Company,
unless he failed to meet certain standards of conduct. If a Director is
wholly successful, on the merits or otherwise, he shall be indemnified against
reasonable expenses.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "1933 Act") may be permitted to Directors, Officers or
persons controlling the Company pursuant to the foregoing provisions, the
Company has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
1933 Act and is therefore unenforceable.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of January 24, 1997, the number and
percentage of shares of the Company's no par value Common Stock (its only
class of voting securities), owned beneficially by each Officer and Director,
each person known by the Company to own more than five percent of the
Company's Common stock, and all Directors and Officers as a group:
<TABLE>
<CAPTION>
Amount and
Nature of
Name and Address of Beneficial Percent of
Beneficial Owner Ownership<FN1> Class
<S> <C> <C>
A.G. Foust 900,000<FN2> 11.62%
4810 West Delaware Drive
Larkspur, CO 80118
Stewart A. Jackson 464,450 6.12%
6025 S. Eaton Lane
Littleton, CO 80123
Dru E. Campbell 182,500<FN3> 2.39%
4810 West Delaware Drive
Larkspur, CO 80118
John J. Womack 125,000 1.65%
208 E. Bannack
Dillon, MT 59725
Dennis C. Dowd 3,000,000<FN4> 39.54%
1624 Market Street, Suite 303
Denver, CO 80202
Powerhouse Resources 3,000,000<FN4> 39.54%
1624 Market Street, Suite 303
Denver, CO 80202
All Officers and 1,671,950 21.42%
Directors as a Group
(5 Persons)
__________________
-18-
<PAGE>
<FN>
<FN1>
To the Company's knowledge, each person listed has sole voting and investment
power over the shares stated as beneficially owned.
<FN2>
Includes 740,000 shares of common stock owned by Mr. Foust and 160,000 shares
underlying stock options held by Mr. Foust. Does not include the 122,500
shares of common stock owned by Mr. Foust's wife who is a part-time employee
and secretary of the Company. Mr. Foust disclaims beneficial ownership of his
wife's shares.
<FN3>
Includes 122,500 shares of common stock owned by Ms. Campbell and 60,000
shares underlying stock options held by Ms. Campbell.
<FN4>
Dennis C. Dowd is also a Director of Powerhouse Resources, Inc. and thus may
have some effective control over the Powerhouse shares. Mr. Dowd is
Powerhouse's representative on the Company's Board of Directors.
</FN>
</TABLE>
The Company is unaware of any arrangements, including a pledge of
securities, which may cause a change in control of the Company.
The Company knows of no arrangements the operation of which may result
in a change of control.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
No Director or Officer of the Company, nominee for election as a
Director, security holder who is known to the Company to own of record or
beneficially more than 5% of any class of the Company's voting securities, or
any relative or spouse of any of the foregoing persons, or any relative of
such spouse, who has the same home as such person or who is a director or
officer of any parent or subsidiary of the Company, has had any transaction or
series of transactions exceeding $60,000, since the beginning of the Company's
last fiscal year, or has any presently proposed transaction, to which the
Company was or is to be a party, in which any of such persons had or is to
have any direct or indirect material interest.
Powerhouse Resources, Inc., which owns 39.54% of the Company's shares,
sold oil and gas properties to the Company in exchange for 3,000,000 shares of
restricted common stock and $225,000 in cash in 1996. Dennis C. Dowd is
Powerhouse's representative on the Company's Board of Directors.
-19-
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION LOCATION
3 Certificate of Incorporation Incorporated by reference to Exhibit
and Bylaws 3 to the Company's Registration State-
ment on Form S-18 (No. 33-15528-D)
23 Consent of Holben, Boak, Filed herewith electronically
Cooper & Co.
27 Financial Data Schedule Filed herewith electronically
(b) REPORTS ON FORM 8-K.
Amendment Nos. 1 and 2 to the Company's Current Report on Form 8-K dated
April 4, 1996 were filed by the Company on August 15, 1996 and November 15,
1996, respectively, reporting (1) a change in control of the registrant, (2)
the acquisition or disposition of assets, and (3) to file financial statements
and exhibits related thereto.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
Independent Auditors' Report F-1
Balance Sheets as of September 30, 1996 and 1995 F-2, F-3
Statement of Operations for the Years Ended
September 30, 1996 and 1995 F-4
Statements of Stockholders' Equity for the
Years Ended September 30, 1994, 1995 and 1996 F-5
Statements of Cash Flows for the Years Ended
September 30, 1996 and 1995 F-6, F-7
Notes to Financial Statements F-8 to F-21
-20-
<PAGE>
HOLBEN, BOAK, COOPER & CO.
- -----------------------------------------------------------------------------
Certified Public Accountants 1720 S. Bellaire Street, Suite 500
Professional Corporation Denver, Colorado 80222
(303) 759-2727 FAX (303) 759-2728
INDEPENDENT AUDITORS' REPORT
Board of Directors
Monument Resources, Inc. and Subsidiaries
Castle Rock, Colorado
We have audited the accompanying balance sheets of Monument Resources, Inc.
and Subsidiaries as of September 30, 1996 and 1995, and the related statements
of operations, stockholders' equity and cash flows for the years 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Monument Resources, Inc. and
Subsidiaries as of September 30, 1996 and 1995, and the results of its
operations and cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Holben, Boak, Cooper & Co.
HOLBEN, BOAK, COOPER & CO.
January 15, 1997
Denver, Colorado
F-1
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
BALANCE SHEETS
SEPTEMBER 30, 1996 AND 1995
1996 1995
ASSETS ---------- ----------
Current assets:
Cash $ 329,677 $ 446,954
Investment in securities (Note 3) 596,325 -
Accounts receivable 15,953 -
Prepaid expense 11,554 -
Total current assets 953,509 446,954
Mineral properties (Note 4) 91,023 96,039
Proved and unproved oil and gas properties,
successful efforts method, net of accumulated
depletion (Note 12) 1,676,316 67,730
Property and equipment:
Gas pipeline, net of accumulated depreciation
(Note 5) 289,978 -
Property and equipment, net of accumulated
depreciation (Note 5) 58,741 12
Net property and and equipment 348,719 12
Investment in securities, at market (Note 3) 491,914 175,000
Total assets $3,561,481 $ 785,735
(Continued)
See notes to financial statements
F-2
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
BALANCE SHEETS
SEPTEMBER 30, 1996 AND 1995
(CONTINUED)
1996 1995
LIABILITIES AND STOCKHOLDERS' EQUITY ---------- ----------
Current liabilities:
Accounts payable and accrued expenses $ 22,320 $ 5,175
Accounts payable, stockholder (Note 9) 54,431 -
Total current liabilities 76,751 5,175
Commitments (Notes 6, 9 and 13)
Stockholders' equity (Notes 3 and 6):
Preferred stock, no par value, authorized
1,000,000 shares; none issued - -
Common stock, no par value, authorized
10,000,000 shares; issued and outstanding
7,587,000 in 1996 and 4,587,000 in 1995 3,531,210 1,156,210
Accumulated (Deficit) (531,985) (544,241)
Unrealized gain on investment
in securities (Note 3) 485,505 168,591
Total stockholders' equity 3,484,730 780,560
Total liabilities and stockholders' equity $3,561,481 $ 785,735
See notes to financial statements
F-3
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
STATEMENT OF OPERATIONS
Years Ended September 30,
1996 1995
Revenue:
Oil and gas sales $ 88,786 $ -
Gain on sale of investments (Note 3) 187,546 362,969
Interest 30,427 8,086
306,759 371,055
Expenses:
Oil and gas operating expense 75,938 -
General and administrative 125,601 110,173
Abandonment and impairment of mineral
and oil and gas properties and exploration
costs (Notes 4 and 12) 64,246 42,229
Depreciation and amortization 28,718 23
294,503 152,425
Income before provision for income taxes 12,256 218,630
Provision for income taxes (Note 8) - (20,279)
Net income $ 12,256 $ 198,351
Net income per share of common stock $ - $ 0.04
Weighted average number of shares
outstanding 6,087,092 4,587,000
See notes to financial statements
F-4
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
Unrealized
Common Stock Accumulated Gain on
Shares Amount (Deficit) Securities
------------------- ----------- ----------
Balances, September 30, 1994 4,092,000 $1,057,960 $(742,592) $ -
Exercise of stock options by
officer at $.10 per share (Note 6) 320,000 32,000 - -
Common stock issued for oil and gas
property at $.25 per share (Note 6) 175,000 43,750 - -
Contribution of services by
officers (Note 5) - 22,500 - -
Unrealized gains on securities
available for sale (Note 3) - - - 168,591
Net income - - 198,351 -
Balances, September 30, 1995 4,587,000 1,156,210 (544,241) 168,591
Common stock issued for oil and
gas properties at $.79 per share
(Note 6) 3,000,000 2,375,000 - -
Unrealized gains on securities
availablefor sale (Note 3) - - - 316,914
Net income - - 12,256 -
Balances, September 30, 1996 $7,587,000 $3,531,210 $(531,985) $485,505
See notes to financial statements
F-5
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
Years Ended September 30,
1996 1995
Cash flows from operating activities:
Net income $ 12,256 $ 198,351
Items not requiring cash:
Amortization and depreciation 28,718 23
Services contributed by officers - 22,500
Gain on sale of securities (187,546) (362,969)
Abandonment and impairment of mineral
and oil and gas properties 64,246 41,460
Deferred offering costs expensed - 6,550
Changes in operating assets and liabilities:
(Increase) in accounts receivable (15,953) -
(Increase) in prepaid expenses (11,554) -
Increase (decrease) in accounts payable
and accrued expenses 71,576 (16,079)
Net cash flows from (used in) operations (38,257) (110,164)
Cash flows from investing activities:
Purchase of securities (596,325) -
Advance to related party (300,000) -
Repayment of advance 300,000 -
Acquisition of oil and gas and mineral properties (235,241) (26,730)
Proceeds from sale of oil and gas properties 565,000 2,500
Proceeds from sale of securities 187,546 404,628
Net cash flows from (used in)
investing activities (79,020) 380,398
Cash flows from financing activities:
Exercise of stock options - 32,000
Repayment of notes payable, related party - (13,552)
Net cash flows from financing activities - 18,448
Net increase (decrease) in cash (117,277) 288,682
Cash at beginning of period 446,954 158,272
Cash at end of period $ 329,677 $ 446,954
(Continued)
See notes to financial statements
F-6
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(Continued)
SCHEDULE OF NON-CASH INVESTMENTS AND FINANCIAL ACTIVITIES
Years Ended September 30,
1996 1995
-------------------------
Issuance of common stock
for properties $ 2,375,000 $ 43,750
Unrealized gain on securities available
for sale $ 38,652 $ 168,591
Income taxes paid $ 1,000 $ 20,279
Interest paid $ - $ 803
See notes to financial statements
F-7
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Monument Resources, Inc. and Subsidiaries (the "Company") was organized under
the laws of the State of Colorado on October 1, 1984. The Company is in the
business of acquiring and brokering mineral and oil and gas properties and
exploring, developing and selling production from its oil and gas properties.
The Company's mineral properties are in Montana and British Columbia, Canada.
The Company's oil and gas properties are in Webb and Knox counties, Texas,
Leavenworth County, Kansas and Kimball County, Nebraska. The Company also
operates a gas pipeline in conjunction with its Leavenworth gas wells.
The Company has a substantial investment in mineral and oil and gas
properties. The Company may not have sufficient capital to fully explore its
mineral holdings or to develop some of its oil and gas properties, which will
require a significant investment. The Company has in the past relied on joint
venture partners to supply most of the funds needed to explore or develop its
properties, and may also rely on such partners for similar funding in the
future. As a result, the ability of the Company to obtain outside funding may
be critical to the Company's exploration and development of some of its
properties. As a result of these factors, recovery by the Company of its
investments in these properties cannot be assured.
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned Canadian subsidiary, formed for the purpose of
owning real property in British Columbia, and its wholly owned Kansas
subsidiary, COG Transmission Corporation, acquired in 1996. All intercompany
transactions and balances have been eliminated in consolidation.
MINERAL PROPERTIES
Costs of acquiring, exploring and developing specific mineral properties are
capitalized on a property by property basis until the commercial viability of
each property is determined. When a property reaches the production stage,
the related capitalized costs will be amortized, using the units of production
method on the basis of periodic estimates of ore reserves. Mining properties
are periodically assessed for impairment of value and any impairments are
charged to operations at the time of impairment. Should a property be sold or
abandoned, its capitalized costs are charged to operations and gain or loss
recognized.
OIL AND GAS PROPERTIES
The Company follows the successful efforts method of accounting for its oil
and gas activities. Under this accounting method, costs associated with the
acquisition, drilling and equipping of successful exploratory and development
wells are capitalized. Geological and geophysical costs, delay rentals and
drilling costs of unsuccessful exploratory wells are charged to expense as
incurred. Depletion and depreciation of the capitalized costs for producing
oil and gas properties are provided by the unit-of-production method based on
proved oil and gas reserves.
F-8
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OIL AND GAS PROPERTIES (Continued)
Undeveloped properties are periodically assessed for possible impairment due
to unrecoverability of costs invested. Cash received for partial conveyances
of property interests are treated as a recovery of cost and no gain or loss is
recognized.
PROPERTY, EQUIPMENT AND GAS PIPELINE
Depreciation and amortization of property and equipment are expensed in
amounts sufficient to relate the expiring costs of depreciable assets to
operations over estimated service lives, principally using the straight-line
method. Estimated service lives range from three to eight years. The gas
pipeline is being amortized on units-of-gas production method based on the
production of the gas wells served by the pipeline. When such assets are sold
or otherwise disposed of, the cost and accumulated depreciation are removed
from the accounts and any resulting gain or loss is reflected in operations in
the period realized.
INCOME (LOSS) PER COMMON SHARE
Income or (loss) per common share is computed by dividing the net income
(loss) by the weighted average number of shares of common stock outstanding.
Warrants and stock options are not included in the computation if the effect
of such inclusion would be antidilutive and would increase the earnings or
decrease loss per share.
STATEMENT OF CASH FLOWS
For the purposes of the statement of cash flows, the Company has determined
that certificates of deposit and investments with maturities of three months
or less will be treated as cash and cash equivalents for purposes of the
statements of cash flows.
CREDIT RISK
The Company maintains substantially all of its cash balances at three banks.
As of September 30, 1995, the amounts deposited at three of those banks
exceeded by immaterial amounts the $100,000 limit insured by the Federal
Deposit Insurance Corporation.
INCOME TAXES
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss
carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the date of
enactment.
F-9
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS IN SECURITIES
The Company follows Statement of Financial Accounting Standards ("SFAS") 115,
"Accounting for Certain Investments in Debt and Equity Securities," in
accounting for its security investments. In accordance with SFAS 115, the
Company's investments in securities have been classified as available for sale
since they are being held for an indefinite period of time. Under the
available for sale classification, the securities are recorded at current
market value on the balance sheet with an offsetting amount representing
unrealized gains recorded as a component of stockholders' equity.
The current market value is derived from published newspaper quotations as of
September 30th. At the time of sale, a gain or loss is recognized in the
statement of operations using the cost basis of securities sold as determined
by specific identification.
NOTE 2 - ESTIMATES AND RISKS
The process of preparing financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
regarding certain types of assets, liabilities, revenues and expenses. Such
estimates primarily relate to impairments of mineral and oil and gas
properties, oil and gas reserves and future cash flow from the pipeline. The
actual future results in the above areas may differ from the estimated
amounts.
Financial statement accounts which potentially subject the Company to
concentrations of credit risk consist primarily of cash and investments in
securities. The Company attempts to deposit its cash with high quality
financial institutions in amounts less than the federal insurance limit of
$100,000 (see Note 1), in order to limit credit risk. The Company's
investments in bonds are considered to have minimum credit risk since they are
U.S. government instruments. The Company's investments in common stock are
considered to have substantial credit risk since the stock is in companies
without a long history of successful operations and whose market values are
variable and cyclical.
The mining and oil and gas industries are subject, by their nature, to
environmental hazards and cleanup costs for which the Company carries
catastrophe insurance. At this time, management knows of no substantial costs
from environmental accidents or events for which it may be currently liable.
In addition, the Company's oil and gas dollar reserve estimates are calculated
net of future cleanup and abandonment costs.
NOTE 3 - INVESTMENT IN SECURITIES
In May 1994, the Company exchanged its interest in a diamond prospect in
Botswana, southern Africa (Note 3) for 1,500,000 common shares in the common
stock of Southern Africa Minerals Corporation ("SAMC") (12.34% of the then
issued and outstanding shares). The Company recorded the investment in
1,500,000 shares of SAMC stock at its cost basis in the Botswana prospect.
F-10
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3 - INVESTMENTS IN SECURITIES (Continued)
In May 1995, the Company sold 1,300,000 shares of the common stock of SAMC to
Layfield Resources, Inc. ("Layfield") in exchange for 3,500,000 shares of
common stock of Layfield and $113,405 (U.S.) in cash. Simultaneously, the
Company sold 1,000,000 shares of Layfield to Yorkton Securities, Inc.
("Yorkton") for $291,223 (U.S.). This transaction represented the settlement
of a lawsuit commenced by Layfield in January 1995 in the Supreme Court of
British Columbia in which Layfield had sought specific performance of an
earlier alleged agreement between Layfield and the Company involving the sale
by the Company to Layfield of all 1,500,000 shares of SAMC owned at the time
by the Company.
The Company has recorded its remaining 200,000 shares of SAMC at fair value in
accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
115") since May 1995. The 2,500,000 shares of Layfield were initially
restricted from trading; however, after the restrictions on Layfield were
lifted during fiscal 1996, the Company sold 500,000 shares of Layfield,
recognizing a gain of $187,546. Based on the demonstrated liquidity and
marketability of the Layfield shares, and in accordance with SFAS 165, the
Company has recorded its investment in the remaining 2,000,000 shares of
Layfield at fair value, determined from published market listings, as of
September 30, 1996. The resulting unrealized gain for the securities has been
recorded as a component of stockholders' equity. The market value is based on
the closing bid price on the respective exchanges. These shares are classified
by the Company as available for sale and non-current, since such sale may not
necessarily be consummated in the near term.
The Company's investment in bonds consists of various U.S. government
financial instruments. The Company considers these bonds to be currently
available for sale and has no timetable for sale or redemption. Nevertheless,
the Company does not expect to hold the bonds to maturity.
Investments in securities are summarized as follows at September 30, 1996:
Gross
Unrealized Fair
Gain Value
---------- ----------
Available-for-sale securities:
Common stock $ 485,505 $ 491,914
Debt securities (maturing in 1 to 3 years) - 596,325
--------- ----------
$ 485,505 $1,088,239
NOTE 4 - MINERAL PROPERTIES
GROUSE PARK, MINERAL COUNTY, COLORADO
At September 30, 1995, the Grouse Park prospect, with remaining capitalized
costs of $5,397 consisted of 5 unpatented lode mining claims covering
approximately 100 acres. During the year ended September 30, 1996, the Company
determined that the prospect did not merit further investment and abandoned
the claims, with a corresponding write off of its investment.
F-11
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 4 - MINERAL PROPERTIES (Continued)
DOBLER PROSPECT, BROADWATER COUNTY, MONTANA
The precious metals Dobler prospect, with capitalized costs of $57,825 at
September 30, 1996 and 1995, consists of 80 acres of fee simple land
(including minerals) and mineral rights to 280 surrounding acres.
The Company is continually trying to locate joint venture opportunities to
further explore the property and has considered selling the property.
Alternative uses of the mineral property are supplying flux to a nearby
smelter or selling the property as ranch land. The property's value as a
homesite approximates the Company's capitalized costs in the prospect.
SURPRISE RIVER PROSPECT, NORTHWEST TERRITORIES, CANADA
In 1994, the Company acquired a 30% interest in the Surprise River diamond
prospect in Canada in exchange for 200,000 restricted shares of the Company's
common stock. The interest is subject to various royalties and future
possible earn-ins by other companies. For financial statement purposes, the
transaction was treated as an exchange of common stock for mineral interests
and was recorded at the seller's cost of $28,800. Exploration efforts during
the Summer of 1995 did not yield promising results and the Company wrote off
its investment in this prospect in fiscal year 1995.
HUNTER 2 CLAIM BLOCK, NORTHWEST TERRITORIES, CANADA
In 1994, the Company acquired a 20% interest in the Hunter 2 Claim Block
diamond prospect in exchange for 200,000 restricted shares of the Company's
common stock. Exploration efforts during the Summer of 1995 did not yield
promising results and the Company wrote off its investment in this prospect in
fiscal year 1995.
ALBERTA GOLD AND DIAMOND PROSPECT, ALBERTA, CANADA
In 1994, the Company acquired a 40% interest in property permits in
northeastern Alberta, Canada. Consideration included $2,860 plus 50,000
restricted shares of the Company's common stock. In 1995, the Company
determined it would not pursue further exploration on this prospect and wrote
off its investment in the year ended September 30, 1995.
WISCONSIN MINE PROPERTY, BRITISH COLUMBIA, CANADA
In 1994, the Company acquired the Wisconsin Mine Property, which consisted of
two patented gold mining claims covering approximately 64 acres, plus ten
surrounding unpatented mining claims. The Company issued 110,000 shares of
its restricted common stock for the property. For financial statement
purposes, the transaction was accounted for as an exchange of common stock for
mineral interests and was recorded at a fair market value of $30,000 (U.S.),
which then and now approximates the value of the underlying patented land.
F-12
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 4 - MINERAL PROPERTIES (Continued)
ALL MINERAL PROPERTIES
Total mineral costs for all properties capitalized were $888 and $96,039 for
the years ended September 30, 1996 and 1995, respectively. Total impairments
or write-offs of mineral properties were $5,904 and $41,460 for the years
ended September 30, 1996 and 1995, respectively.
NOTE 5 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at cost, less accumulated
depreciation:
1996 1995
--------- ------
Land $ 12,500 $ -
Machinery and equipment 51,736 495
--------- ------
64,736 495
Less: Accumulated depreciation (5,495) (483)
--------- ------
Net property and equipment 58,741 12
Pipeline 300,000 -
--------- ------
Less: Accumulated amortization (10,022) -
--------- ------
Net pipeline 289,978 -
--------- ------
Net property and equipment $ 348,719 $ 12
--------- ------
Depreciation expense charged to operations was $15,033 and $23 in fiscal 1996
and 1995, respectively.
The useful lives of property and equipment for purposes of computing
depreciation are:
Machinery and equipment 5 years
Pipeline Useful life of gas production,
approximately 5 to 7 years
NOTE 6 - STOCKHOLDERS' EQUITY
The Company's amended Articles of Incorporation authorize the issuance of
1,000,000 shares of preferred stock with no par value. The preferred stock
may be issued from time to time with such designation, rights, preferences and
limitations as the Board of Directors may determine by resolution. As of
September 30, 1996, no shares of preferred stock have been issued.
F-13
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 6 - STOCKHOLDERS' EQUITY (Continued)
In 1993, the Company sold 1,152,000 shares of restricted common stock for
$288,000 ($.25 per share) through a private placement. One warrant was
attached to each share and was exercisable for a period of three years from
the completion of the offering (to 1997) at $.25 per share. On September 23,
1996, the Company extended the exercise period and amended the exercise price
of the warrants such that the warrants may be exercised from October 1, 1996
to February 1, 1997 at $.25 per share and from February 1,1997 to July 1, 1997
at $.35 per share. As of September 30, 1996, none of the 1,152,000 warrants
have been exercised.
During fiscal 1995, officers contributed management and administrative
services to the Company valued at $22,500, which have been recorded as an
expense and a contribution to equity. There was no such contribution during
fiscal 1996.
In May 1995, the Company issued 175,000 restricted shares of common stock and
$25,000 in exchange for 100% of the working interest in approximately 22,000
acres of oil and gas prospects in Perkins County, Nebraska (see Note 12). The
175,000 shares were valued at $43,750, which approximated seller's acquisition
and exploration costs.
Effective April 1, 1996, the Company acquired various oil and gas properties
and a gas pipeline from Crescent Oil and Gas Corporation ("Crescent"), a
wholly owned subsidiary of Powerhouse Resources, Inc. ("Powerhouse"), in
exchange for 3,000,000 shares of the Company's common stock and $225,000. As
part of the sale, the Company agreed that Powerhouse may demand that the
Company undertake a registration of Powerhouse's 3,000,000 shares for sale to
the public and that the right to make such a demand expires on April 1, 1999.
Should a registration occur, Powerhouse is obligated to pay half of the
registration costs, which are estimated to total $50,000. For accounting
purposes, The Company valued the property purchase at $2,600,000, which was
the sum of the estimated fair value of the estimated oil and gas reserves, the
present value of the cash flow of the pipeline and the net realizable value of
the equipment.
NOTE 7 - STOCK OPTION PLANS
During 1986, the Company adopted an Employees' Incentive Stock Option Plan
(the "Employees' Plan"). The exercise price of the shares covered by stock
options granted pursuant to the Employees' Plan must be, at a minimum, 100% of
the quoted market value of the stock at the time the option is granted. No
options are outstanding under the Employees' Plan.
During 1986, the Company adopted a Directors' Stock Option Plan (the
"Directors' Plan") for the benefit of the non-employee directors of the
Company. The exercise price of the shares covered by options granted pursuant
to the Directors' Plan must be $1.60 per share. With respect to each
individual option granted under the Directors' Plan, the Board of Directors
will determine separately the number of shares, the option period, and the
limitations which will apply to the exercise of options. No options are
outstanding under the Directors' Plan.
F-14
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 7 - STOCK OPTION PLANS (Continued)
In January 1993, the Company granted stock options (exclusive of the above
plans) to the officers in lieu of compensation. The options are for 540,000
shares and are exercisable for the five years beginning January 14, 1993 at a
price of $.10 per share, which price was in excess of market value of the
Company's shares at the date of grant. In May 1995, the Company's former
President, Stuart Jackson, exercised all of his options for 320,000 shares of
the Company's common stock at $.10 per share.
NOTE 8 - 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.
Components of the provision for income tax for the years ended September 30,
consist of the following:
1996 1995
Current: ------ -------
Federal $ - $15,750
State - 4,529
Deferred:
None - -
------ -------
$ - $20,279
The provision for income taxes for the years ended September 30, 1996 and 1995
differs from the amounts computed by applying the federal tax rate to income
before income taxes. The reasons for the differences are as follows:
As a percent of pretax income: 1996 1995
------ -----
Tax at federal statutory rate 20.0% 34.0%
Contributed services 0.0 3.5
Net loss carry forward 0.0 (99.9)
Sale of securities 0.0 63.7
Property write off (20.0) 6.4
Other 0.0 1.6
------ -----
Provision for income taxes 0.0% 9.3%
Net deferred tax assets at September 30, 1996 and 1995 consist of the
following:
F-15
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 8 - INCOME TAXES (Continued)
1996 1995
--------- ---------
Deferred tax liabilities $ (3,890) $ -
Deferred tax assets:
Securities valuation 128,499 159,308
Mining prospects written off - 16,128
Pipeline amortization 19,442 -
Total 144,051 175,436
Less: valuation allowance (144,051) (175,436)
--------- ---------
Net deferred tax assets $ - $ -
At September 30, 1996, the Company has no operating loss carry forwards since
they were totally utilized in connection with the sale of SAMC and acquisition
of Layfield common stock.
NOTE 9 - RELATED PARTY TRANSACTIONS
During the years ended September 30, 1996 and 1995, the Company paid $5,174
and $5,329, respectively, to the wife of the Company's current president for
administrative and secretarial services. She is also a shareholder and
officer of the Company.
The Company utilizes on a rent-free basis some office furniture and equipment
owned by the officers.
Prior to the Company's purchase of the Crescent oil and gas properties in
April 1996, the Company advanced Crescent's parent, Powerhouse, $300,000 to be
used by Powerhouse to pay off liens and creditors of Crescent. Powerhouse
paid the creditors and then repaid the $300,000 to the Company in April 1996.
At September 30, 1996, the Company owed Powerhouse $54,431, which was the
final amount due on the purchase of the oil and gas properties from Crescent.
At September 30, 1996 and 1995, the Company's current president owned 9.75%
and 16% of the outstanding shares of common stock, respectively, and one of
the Company's current directors (formerly president) owned 6.12% and 10% as of
each year end, respectively. During 1995, the former president conveyed
870,000 shares to the current president and other directors.
NOTE 10 - MAJOR CUSTOMERS
The Company derived in excess of 10% of its revenue from various sources (oil
and gas sales and sale of securities) as follows:
Company
A B
-----------
Year ended: September 30, 1995 98% 0%
September 30, 1996 61% 21%
F-16
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 11 - SEGMENT INFORMATION
The Company operates in two industry segments within the United States: (1)
oil and gas exploration and development and (2) mineral exploration and
development.
Identified assets by industry are those assets that are used in the Company's
operations in each industry. Corporate assets are principally cash,
furniture, fixtures and equipment.
Segment information consists of the following:
Year ended September 30,
1996 1995
Revenues: ---------- ----------
Oil and gas $ 88,786 $ -
Mineral - -
General corporate 217,973 371,055
---------- ----------
Total revenue $ 306,759 $ 371,055
---------- ----------
Results of operations
(excluding overhead and
interest costs)
Oil and gas $ (74,212) $ -
Mineral exploration (5,904) (42,229)
General corporate operations 92,372 260,859
---------- ----------
Net income (loss) $ 12,256 $ 218,630
---------- ----------
Depreciation, depletion, amortization
and valuation charged to
identifiable assets:
Oil and gas depletion $ 28,718 $ -
General corporate - 23
---------- ----------
Total $ 28,718 $ 23
---------- ----------
Capitalized cash expenditures:
Oil and gas $ 234,353 $ 26,480
---------- ----------
Mineral $ 888 $ 250
---------- ----------
Identifiable assets, net of
accumulated depreciation,
depletion and amortization:
Oil and gas $2,040,988 $ 67,730
Mineral exploration 91,023 96,039
General corporate operations 1,429,470 621,966
---------- ----------
Total $3,561,481 $ 785,735
F-17
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 12 - OIL AND GAS ACTIVITIES
In May 1995, the Company acquired a 100% leasehold interest in approximately
22,000 acres of undeveloped oil and gas leases in Perkins County, Nebraska for
$25,000 cash and 175,000 shares of the Company's restricted common stock
(valued at $43,750), or approximately $3 per acre. (Note 6). During the year
ended September 30, 1996, a third party drilled several wells on the property
under a farmout agreement. The reserves thus discovered were of marginal
value and the Company abandoned most of the leases and wrote off the
remainder in the year ended September 30, 1996.
In November 1995, the Company acquired an interest in three producing oil
wells in Kimball County, Nebraska for $22,000 in cash.
Effective April 1, 1996, the Company acquired oil and gas properties and a gas
pipeline from Crescent Oil and Gas Corporation ("Crescent"). The purchase
included the Leavenworth Kansas proved producing and proved undeveloped gas
properties and the nearby gas pipeline, various equipment associated with the
pipeline, proved producing and proved undeveloped gas properties in Texas
known as Galvan Ranch property and proved producing and proved undeveloped oil
properties and related surface equipment in East Voss, Texas. These
properties constitute the major percentage of the oil and gas reserves of the
Company at September 30, 1996. The Company valued the purchase at $2,600,000,
based on the estimated fair value of the property. In addition to the oil and
gas properties, the Company purchased 100% of the stock of COG Transmission
Corporation ("COG"), which had title to the gas pipeline prior to the sale to
the Company. No purchase value was allocated to the purchase of COG by the
Company.
In May 1996, the Company sold half of its interest in the Galvan Ranch
property for $565,000 in cash. The Company recognized no gain or loss on the
transaction since the selling price equaled the basis assigned by the Company
at the time of purchase on April 1, 1996.
CAPITALIZED COSTS
Capitalized costs associated with oil and gas producing activities are as
follows:
September 30,
1996 1995
----------------------
Unproved properties $ - $67,730
Proved properties 1,690,000 -
Accumulated depreciation,
depletion and amortization (13,684) -
Net capitalized costs $1,676,316 $67,730
COSTS INCURRED
Information relating to the Company's costs incurred in its oil and gas
property acquisition, exploration and development activities is summarized as
follows:
F-18
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 12 - OIL AND GAS ACTIVITIES (Continued)
September 30,
1996 1995
----------------------
Proved developed acquisitions $2,322,000 $ -
Proved undeveloped acquisitions - 67,730
---------- -------
Total costs incurred $2,322,000 $67,730
RESULTS OF OPERATIONS
Results of operations for oil and gas producing activities are as follows:
September 30,
1996 1995
----------------------
Revenues $ 88,786 $ -
Production costs (75,938) -
Depreciation and depletion (28,718) -
Abandonments (58,342) -
--------- --------
Results of operations
(excluding corporate overhead) $ (74,212) $ -
UNAUDITED OIL AND GAS RESERVE QUANTITIES
The following unaudited reserve estimates presented as of June 30, 1996 and
1995 were prepared by Resource Services International. There are many
uncertainties inherent in estimating proved reserve quantities and in
projecting future production rates and the timing of development expenditures.
In addition, reserve estimates of new discoveries that have little production
history are more imprecise than those of properties with more production
history. Accordingly, these estimates are expected to change as future
information becomes available.
Proved oil and gas reserves are the estimated quantities of crude oil,
condensate, natural gas and natural gas liquids which geological and
engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions.
Proved developed oil and gas reserves are those reserves expected to be
recovered through existing wells with existing equipment and operating
methods.
Unaudited net quantities of proved developed reserves of crude oil (including
condensate) and natural gas (all located within the United States) are as
follows:
F-19
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 12 - OIL AND GAS ACTIVITIES (Continued)
Changes in Proved Reserves (Bbls) (MCF)
(in thousands)
Estimated quantity, September 30, 1995 - -
Revisions of previous estimates - -
Acquisitions at April 1, 1996 173 7,524
Sales of reserves - (3,288)
Production - (32)
--- ------
Estimated quantity, September 30, 1996 173 4,204
Proved reserves at year Developed Undeveloped Total
end (in thousands)
----------------------- --------- -------------- -----
Oil (Bbls)
September 30, 1995 - - -
September 30, 1996 - 173 173
Gas (MCF)
September 30, 1995 - - -
September 30, 1996 1,138 3,066 4,204
UNAUDITED STANDARDIZED MEASURE
The following table presents a standardized measure of the discounted future
net cash flows attributable to the Company's proved oil and gas reserves.
Future cash inflows were computed by applying year-end prices of oil and gas
to the estimated future expenditures (based on current costs) to be incurred
in developing and producing the proved reserves, assuming continuation of
existing economic conditions.
Future income tax expenses were computed by applying statutory income tax
rates to the difference between pre-tax net cash flows relating to the
Company's proved oil and gas reserves and the tax basis of proved oil and gas
reserves and available net operating loss carryforwards. Discounting the
future net cash inflows at 10% is a method to measure the impact of the time
value of money.
The following presents the principal sources of the changes in the
standardized measure of the discounted future net cash flows:
F-20
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 12 - OIL AND GAS ACTIVITIES (Continued)
Unaudited Standardized Measure (Continued)
September 30,
1996 1995
-------- ------
(in thousands)
Future cash inflows $ 10,077 $ -
Future production and
development costs 5,557 -
Future income tax expense (962) -
-------- ------
Future net cash flows 3,558 -
10% annual discount for es-
timated timing of cash flows (2,073) -
-------- ------
Standardized measure of
discounted future net
cash flows $ 1,485 $ -
NOTE 13 - LEASES
The Company has an operating lease for a gas compressor that it uses in its
pipeline operation. Lease costs in fiscal 1996 amounted to $18,316. The
lease was renewed on October 1, 1996 for six months at $1,500 per month.
Thereafter, the lease is renewable on a month to month basis.
F-21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MONUMENT RESOURCES, INC.
Date: January 28, 1997 By/s/ A.G. Foust
A.G. Foust, President
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
Company and in the capacities and on the dates indicated.
Signature Title Date
/s/ A.G. Foust President (Chief Executive January 28, 1997
A.G. Foust Officer, Principal Financial
and Accounting Officer)
and Director
/s/ Stewart A. Jackson Director January 28, 1997
Stewart A. Jackson
- ------------------------ Director
John J. Womack
/s/ Dennis C. Dowd Director January 28, 1997
Dennis C. Dowd
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheets and statement of operations found on pages F-2 through F-4 of
the Company's Form 10-KSB for the fiscal year ended September 30, 1996, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 329,677
<SECURITIES> 596,525
<RECEIVABLES> 15,953
<ALLOWANCES> 0
<INVENTORY> 11,554
<CURRENT-ASSETS> 953,509
<PP&E> 2,116,058
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,561,481
<CURRENT-LIABILITIES> 76,251
<BONDS> 0
485,505
0
<COMMON> 353,210
<OTHER-SE> (532,985)
<TOTAL-LIABILITY-AND-EQUITY> 3,561,481
<SALES> 88,786
<TOTAL-REVENUES> 306,759
<CGS> 75,938
<TOTAL-COSTS> 294,503
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 12,256
<INCOME-TAX> 0
<INCOME-CONTINUING> 12,256
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,256
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
