U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 For the fiscal year ended 9/30/98.
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934.
Commission file number 33-15528-D
MONUMENT RESOURCES, INC.
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(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 No.)
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, Including Area Code
Securities registered under Section 12(b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Exchange 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 X No
Check if there is no disclosure of delinquent filers in response 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 $380,289.
The Issuer had 4,699,000 shares of its Common Stock outstanding at December 29,
1998. (See Notes 6 and 14 to the Consolidated Financial Statements.)
The Issuer's Common Stock is not quoted on any securities exchange, the
facilities of NASDAQ, the DTC Bulletin Board or the National Quotation Bureau's
"Pink Sheets." On December 10, 1998, the Issuer repurchased 500,000 shares of
its Common Stock for $55,000 or $0.11 per share. On that basis, the aggregate
market value of shares held by non-affiliates would be $332,975 (i.e. 3,027,050
shares multiplied by $0.11 per share).
Documents incorporated by reference: None.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
This Report contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed herein including "Management's
Discussion and Analysis or Plan of Operations" and Item 2 under "Description of
Properties" and "Oil and Gas Reserves."
(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.
(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 cannot engage in major
exploration and development activities, except on a carried interest basis.
In June 1997, the Company entered into an agreement to acquire a 50%
working interest in approximately 4,600 acres of prospective Berea formation gas
reserves in Morgan County, Ohio, called the Hackney Project. The Company's share
of the acquisition cost was approximately $20,000. The Company had the right to
participate in future development of the area by drilling four wells within 12
months. In June 1998 the company participated in the drilling of a test well on
the project. Due to disappointing results after completion, the well was plugged
and abandoned and the Company elected to terminate its future participation in
the project. Total cost of the Company's share of the test well was $33,096.
In September 1997, the Company purchased from Camco Oil, Inc. for $15,000
all its interest in 17 gas wells, gas gathering system and related equipment in
Leavenworth County, Kansas, known as the Heim property. These wells and the
gathering system have been tied into the Company's existing gas pipeline and gas
sales system. The Company continues to evaluate and recomplete the gas wells to
determine their potential for additional productivity. As of December 1998, 7
gas wells have been placed on production and are currently producing from 100 to
200 MCF of gas per day. The Company expects the daily production to increase
with the addition of and/or recompletion of the remaining wells.
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.
PRINCIPAL PRODUCTS PRODUCED AND SERVICES RENDERED
The Company's products during fiscal year ended September 30, 1998, 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 Company's
producing wells are located. In the fiscal year ended September 30, 1998, crude
oil and natural gas sales, and related revenues accounted for $280,693 or 74% of
the Company's revenues, $75,515, or 20% was the result of the gain on sale of an
investment, while $22,360 or 6% was interest income. The Company did not receive
any mineral revenues during fiscal 1998.
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ITEM 1. DESCRIPTION OF BUSINESS (Continued)
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 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 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
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, 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 experience will be in a better position than the Company to compete
for such leases.
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 in fiscal year ended
September 30,1998, two companies purchased in excess of 10% of the Company's
total oil and gas production. The availability of oil and gas purchasers is
such, however, that any buyer discontinuing purchases from the Company could
most likely be replaced by another buyer.
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
sometimes occur on public lands, may be subject to regulation by, among other
state and federal agencies, the Bureau of Land Management, the U.S. Army Corps
of Engineers or the U.S. Forest Service.
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1. BUSINESS - (CONTINUED)
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.
EMPLOYEES AND CONSULTANTS
The Company currently has two full-time employees, A.G. Foust, President
and Jeff D. Ogden, Kansas Gas Field Supervisor, and a part-time contract oil and
gas accounting consultant. 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.
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ITEM 2. DESCRIPTION OF PROPERTIES.
The Company has interests in a number of oil and gas projects, one
undeveloped gold and silver prospect in the United States, and one undeveloped
gold property in British Columbia, Canada. The Company also has an interest in a
mineral concession in Sweden.
The following subsections set forth information concerning each of the
Company's prospects.
OIL AND GAS PROSPECTS
Galvan 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. Third party exploration
drilling was conducted on the property during 1997 which resulted in two dry
holes. The third party has not informed the Company of any additional plans it
may have for the project.
Kansas Gas Project - Leavenworth County, Kansas
The Company acquired its original interest in this property in April 1996,
and acquired an additional interest in the area from Camco Oil, Inc. in
September 1997. The project consists of approximately 3,500 acres of oil and gas
leases with right-of-ways and approximately 38 gas wells, over 20 miles of a gas
gathering and pipeline system, and necessary equipment and facilities to produce
and market the gas production. Currently these wells are producing an aggregate
of approximately 400 MCFPD. During 1997 and 1998, the Company conducted a
workover program on a number of the wells, which increased the production to its
current level. Management believes a continued modest workover program will
maintain the production at its current level of profitability. The Camco/Heim
acquisition referred to in Item 1 above, added significant reserves and daily
production to the project.
East Voss Waterflood - Knox County, Texas
The Company acquired an interest in this property from Powerhouse
Resources, Inc. in April 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 possible secondary waterflood potential.
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
interest in the three wells are 7.50%, 3.93% and 3.33%. These wells were drilled
approximately 5 years ago and are currently generating a total of approximately
$500 per month cash flow to the Company.
GOLD MINING PROSPECTS
Dobler Mine Prospect, Broadwater County, Montana
The Company 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.
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ITEM 2. PROPERTIES - (CONTINUED)
The Company believes that this property is prospective for gold and silver
through either a high grade underground mine or a low grade open pit operation.
However, due to the property's location, the Company is assessing the property's
potential real estate value and most likely will sell the property for real
estate if an acceptable buyer and purchase price can be obtained.
Wisconsin Property, Near Kootenay Lake, B.C., Canada
The Company acquired, in exchange for 110,000 shares of the Company's
common stock, 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).
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.
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 and timber 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 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 Consolidated Financial Statements.
In 1998, the Company sold 50,000 shares of Layfield common stock for $8,422
and 100,000 shares of SAF common stock for $70,798. The Company plans to hold
the balance of its Layfield and SAF shares (1,950,000 and 100,000 shares,
respectively) and sell 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
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
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ITEM 2. PROPERTIES - (CONTINUED)
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.
In October 1997 the Company acquired a base metal mineral project in
Southern Sweden. The project is a joint venture with Geoforum Scandinavia AB and
covers over 8,000 hectares (19,700 acres) of licensed lands. The properties
consist of three exploration licenses with the government of Sweden and are
valid for three years from date of issuance. The Company paid $20,000 cash and
is committed to issue 50,000 shares of the Company's restricted common stock to
acquire a 70% working interest in the project. The properties are prospective
for shallow strata- controlled zinc, lead, minor precious metals, and possible
fluorite and barite deposits. Exploration procedures anticipated are geological,
geochemical, and geophysical surveys, followed by sample drilling. The area is
easily accessible by road with power and water readily available. The Company is
currently seeking an industry partner to fund the exploration and development of
this project.
PRODUCTION INFORMATION
NET PRODUCTION, AVERAGE SALES PRICE, AND AVERAGE PRODUCTION COSTS
The table below sets forth the net quantities of oil and gas production
attributable to the Company for the fiscal years ended September 30, 1998 and
1997 and the average sales prices, average production costs, and direct lifting
costs per unit of production.
Year Ended September 30,
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Net Production 1998 1997
- -------------- ---- ----
Oil (BBLS) 1,076 1,440
Gas (MCF) 112,630 86,842
Average Sales Prices
- --------------------
Oil (per BBL) $ 11.98 $ 12.67
Gas (per MCF) $ 1.38 $ 3.01
Average Production Cost
- -----------------------
Per equivalent* MCF of gas $ 1.55 $ 1.88
Average Lifting Costs
- ---------------------
Per equivalent* MCF of gas $ .83 $ 1.08
Production costs include all expenses, depreciation, depletion, and
amortization, lease operating expenses and all associated taxes. Direct lifting
costs do not include impairment expense, ceiling write down or depreciation,
depletion and amortization.
*Equivalency assumes that one barrel of oil equals 6 MCF of gas.
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ITEM 2. PROPERTIES - (CONTINUED)
RESERVE INFORMATION
OIL AND GAS RESERVES
Oil and gas reserves for the Company's properties have been evaluated as of
September 30, 1998.
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 and 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, 1997 and 1998. See Note 12 to the Consolidated
Financial Statements for required Securities and Exchange Commission disclosure.
Proved Reserves
- ---------------
Oil (M BBLS) Gas (MCF)
------------ ---------
Estimated quantity, September 30, 1996 173 4,204
Revisions of previous estimates - (2,797)
Acquisitions at September 30, 1997 380
Production - (87)
--- -----
Estimated quantity, September 30, 1997 173 1,700
Revision of previous estimates (24) 213
Production - (113)
--- ----
Estimated quantity, September 30, 1998 149 1,800
=== =====
Developed Undeveloped Total
--------- ----------- -----
Oil (M BBLS)
September 30, 1997 - 173 173
September 30, 1998 - 149 149
Gas (MCF)
September 30, 1997 1,057 643 1,700
September 30, 1998 1,199 601 1,800
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ITEM 2. PROPERTIES - (CONTINUED)
OIL AND GAS TITLES
As is customary in the oil and gas industry, the Company performs only a
perfunctory title examination at the time of acquisition of undeveloped
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.
MINING TITLES
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 federal
unpatented mining claims is dependent upon inherent uncertainties such as the
sufficiency of the discovery of minerals, proper positing 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. 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. As of September 30, 1998, the Company had no unpatented mining
claims.
OFFICE FACILITIES
The Company's Castle Rock, Colorado office consists of approximately 100
square feet and has been leased from an unaffiliated third party for $100 per
month on a month-to-month basis since September 1, 1997. In addition, the
Company maintains offices with a one-year lease in Denver, Colorado, at a cost
of $770 per month.
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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 not matters submitted to a shareholder vote during the fourth
quarter of the fiscal year ended September 30, 1998.
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, and has been quoted only
sporadically since November 1992.
(b) Holders. The estimated number of beneficial owners of the Company's
common stock at December 29, 1998 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, 1997, the Company had $550,123 in current assets and
$519,136 in working capital. As of September 30, 1998, the Company had $404,002
in current assets and $386,067 in working capital. The decrease in working
capital of $133,069 or 25.6% was due primarily to conversion of investment in
securities to cash which was used to acquire mineral properties, drill a test
well on the Company's Ohio acreage and repurchase one million shares of the
Company's common stock from a non-affiliated party.
At the present time, the Company's primary source of cash for operations
and exploration is its current working capital, cash flow from operations, 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 capital 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 $42,000 will be needed in 1999
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.
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ITEM 6. MANAGEMENT'S DISCUSSION - (CONTINUED)
Results Of Operations
The Company's revenue increased from $342,074 in 1997 to $380,289 in 1998.
The increase of approximately $38,000 was the net result of a gain on the sale
of stock of $76,000 and a decrease in interest income and other income of
$18,600 and $19,400 respectively. Oil and gas and pipeline sales were
substantially unchanged from the previous year.
The Company's statement of operations for fiscal 1998 shows expenses of
general and administrative costs of $162,268 compared to $197,185 in fiscal
1997. The decrease of $35,000 was due to a reduction of legal and accounting
fees of approximately $18,000 and approximately a $17,000 reduction in other
general and administrative expenses.
Oil and gas and pipeline operating costs remained constant when comparing
the two periods while depletion and depreciation expense increased $11,667 or
15%. The Company elected to report an impairment on one of its Texas properties
and accordingly set up an impairment reserve of $561,000 for the year ended
September 30, 1998. Both the increase in depletion expense and the recognition
of the impairment were due to a significant decline in oil prices the Company
experienced at the end of its fiscal year. Because of the price decline,
recoverable reserves and productive lives of its oil and gas properties were
shortened, causing potential reduced future cash flows from this property.
During June 1998 the Company drilled a test well on a gas prospect in Ohio. The
well was unsuccessful and the prospect was abandoned, resulting in dryhole costs
of approximately $33,000.
The Company is aware of the issues associated with the programming code in
existing computer systems as the millenium (Year 2000) approaches. Accordingly,
as of September 30, 1998, the Company has converted all of its computer software
to accommodate the "Year 2000" issue. The amount expensed in 1998 was
immaterial.
ITEM 7. FINANCIAL STATEMENTS.
The Report of the Independent Certified Public Accountants appearing at Page F-1
and the Consolidated Financial Statements and Notes to Consolidated Financial
Statements appearing at Pages F-2 through F-26 hereof are incorporated herein by
reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
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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 55 President and a October 1, 1984
Director
Stewart A. Jackson 56 Director January 1, 1992
John J. Womack 78 Director June 20, 1986
Ray K. Davis 56 Secretary N/A
Dru E. Campbell 47 Assistant Secretary N/A
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 1, 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 engineer with
Shell Oil Company, designing and supervising production of water and chemical
flood installations. Mr. Foust has a BS degree in Chemical Engineering from
Montana State University.
12
<PAGE>
ITEM 9. DIRECTORS - (CONTINUED)
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 33 years
experience in the mineral industry and has been associated with the Company in a
geological consulting capacity for the past three 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, Sout 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.
John J. Womack has been a Director of the Company since June 20, 1986. Mr.
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 BA degree (1947) and a MA 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.
Ray K. Davis has been associated with Monument Resources since March 1996
in the capacity of Financial Consultant and provides the Company with
administrative services, accounting, SEC and tax support. He has 30 years
experience in the oil and gas and mining industries, with emphasis on asset
acquisition, mergers and project due diligence. Merger and acquisition
negotiations as well as due diligence projects have taken him to Russia, Alaska,
Mexico, and Europe. Mr. Davis has been a consultant to the oil and gas
industries since November 1984. From May of 1977 through October 1984, he was
treasurer of Macey and Mershon Oil, Inc. responsible for financial planning and
operations of the Company and its owners. From June 1973 to April 1977, he was a
partner in the firm of Ballard-Davis Associates which provided financial and
accounting services to small and newly formed companies in the oil and gas
industry. From November 1969 to March 1973 Mr. Davis was Controller of the
Baumgartner Companies with oil, gas, mining, and drilling operations in the
United States and Canada. From November 1968 to November 1969, he was Assistant
Controller of The Colorado Corporation, a wholly owned subsidiary of King
Resources, Inc. Mr. Davis is a 1967 graduate of the University of Denver,
Denver, Colorado with a Bachelor of Science degree in Business Administration.
Mr. Davis is a past officer and director of the Colorado Society of Petroleum
Accountants. For three years, he taught oil and gas accounting at Arapahoe
Community College.
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. On November 1, 1997, Ms. Campbell resigned as Corporate
Secretary and assumed the position of Assistant Secretary. Ms. Campbell has over
28 years office and secretarial experience.
13
<PAGE>
ITEM 9. DIRECTORS - (CONTINUED)
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 Exchange Act or any Company registered as
an investment Company under the Investment Company Act of 1940. All persons
whose activities are material to the operations of the Company have been
described herein.
The Company's Directors, Officers, and 10% or more 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, 1997 and 1998.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- ------ -------
Restricted Options/
Name and Principal Fiscal Other Annual Stock SARs LTIP All Other
Position Year Salary Bonus Compensation Award(s) (Number) Payouts Compensation
-------- ---- ------ ----- ------------ -------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A.G. Foust, President 1997 $46,000 -0- -0- -0- -0- -0- -0-
and Chief Executive 1998 $48,000 -0- -0- -0- -0- -0- -0-
Officer
</TABLE>
OPTION/SAR GRANTS IN FISCAL YEAR ENDED SEPTEMBER 30, 1998
---------------------------------------------------------
Percent of Total
Options/SARs
Options/ Granted to Exercise
SARs Employees in or Base
Name (Number) Fiscal Year Price ($/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, in its discretion,
may adopt one or more of such programs in the future.
Refer to Note 7, page 16 to the Consolidated Financial Statements for
status of current outstanding stock options.
14
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of December 29, 1998, 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:
Name and Address of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership Class
---------------- -------------------- -----
A.G. Foust 900,000 (1) 17.48%
4810 West Delaware Drive
Larkspur, CO 80118
Stewart A. Jackson 464,450 9.02%
6025 S. Eaton Lane
Littleton, CO 80123
Dru E. Campbell 182,500 (2) 3.54%
4810 West Delaware Drive
Larkspur, CO 80118
John J. Womack 125,000 2.43%
208 E. Bannack
Dillon, MT 59725
Powerhouse Resources, Inc. 500,000 9.91%
1624 Market Street, Suite 303
Denver, CO 80202
All Officers and Directors as a 1,671,950 32.47%
Group (4 Persons)
To the Company's knowledge, each person listed has sole voting and
investment power over the shares stated as beneficially owned.
(1) 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, Dru E. Campbell,
who is Assistant Secretary of the Company. Mr. Foust disclaims beneficial
ownership of his wife's shares.
(2) Includes 122,500 shares of common stock owned by Ms. Campbell and 60,000
shares underlying stock options held by Ms. Campbell.
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.
15
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During the fiscal year ended September 30, 1998, the Company repurchased
1,000,000 shares of its common stock from Powerhouse Resources, Inc for
$110,000. As of September 30, 1998, Powerhouse Resources, Inc. owned 500,000
shares of the Company's common stock which the Company repurchased on December
10, 1998, for $55,000.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS. None
(b) No reports were filed on Form 8-K during the Company's fourth quarter
ended September 30,1998.
16
<PAGE>
INDEX TO FINANCIAL STATEMENTS
TITLE
PAGE
Independent Auditors' Reports F-1
Balance Sheets as of September 30, 1998 and 1997 F-2, F3
Statement of Operations for the Years Ended
September 30, 1998 and 1997 F-4
Statements of Stockholders' Equity for the
Years Ended September 30, 1998, and 1997 F-5
Statements of Cash Flows for the Years Ended
September 30, 1998 and 1997 F-6, F-7
Notes to Consolidated Financial Statements F-8 to F-26
17
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Monument Resources, Inc. and Subsidiaries
Castle Rock, Colorado
We have audited the accompanying balance sheet of Monument Resources, Inc. and
Subsidiaries as of September 30, 1998 and 1997, 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, 1998 and 1997, and the results of its
operations and cash flows for the years then ended in conformity with generally
accepted accounting principles.
Gordon, Hughes & Banks, LLP
December 4, 1998, except Note 14,
as to which the date is December 10, 1998
Englewood, Colorado
F-1
<PAGE>
<TABLE>
<CAPTION>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997
ASSETS 1998 1997
- ------ ---- ----
Current assets:
<S> <C> <C>
Cash $ 46,387 $ 43,094
Investment in securities (Note 3) 325,304 472,056
Accounts receivable 21,137 25,394
Prepaid expense 11,174 9,579
---------- ----------
Total current assets 404,002 550,123
---------- ----------
Mineral properties (Note 4) 127,837 92,717
Proved and unproved oil and gas properties,
successful efforts method, net of accumulated
depletion (Note 12) 1,069,993 1,667,006
Property and equipment:
Gas pipeline, net of accumulated depreciation (Note 5) 237,164 266,139
Property and equipment, net of accumulated
depreciation (Note 5) 59,129 79,299
Net Property and equipment ---------- ----------
296,293 345,438
Investment in securities, at market (Note 3) 192,576 213,718
---------- ----------
Total assets $2,090,701 $2,869,002
========== ==========
(Continued)
See notes to financial statements
F-2
</TABLE>
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
1998 1997
---- ----
Current liabilities:
Accounts payable and accrued expenses $ 17,935 $ 30,987
----------- -----------
Total current liabilities 17,935 30,987
----------- -----------
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
5,199,000 in 1998 and 6,149,000 in 1997 3,197,210 3,297,210
Accumulated (Deficit) (1,343,547) (686,540)
Unrealized gain on investment
in securities (Note 3) 219,103 227,345
- ----------- -----------
Total stockholders' equity 2,072,766 2,838,015
----------- -----------
Total liabilities and stockholders' equity $ 2,090,701 $ 2,869,002
=========== ===========
See notes to financial statements
F-3
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
1998 1997
---- ----
Revenue:
Oil and gas sales $ 167,923 $ 147,415
Gas pipeline 112,770 132,599
Gain on sale of investments (Note 3) 75,515 --
Interest 22,360 40,945
Other income 1,721 21,115
----------- -----------
Total 380,289 342,074
----------- -----------
Expenses:
Oil and gas operating expense 99,137 103,552
Pipeline operating expense 91,702 84,101
General and administrative 162,268 197,185
Impairment of oil and gas properties 561,448 --
Abandonment of mineral
and oil and gas properties and
exploration costs (Notes 4 and 12) 33,096 33,813
Depreciation, depletion and amoritzation 89,645 77,978
----------- -----------
Total 1,037,296 496,629
----------- -----------
$ (657,007)
Net (loss) $ (657,007) $ (154,555)
=========== ===========
Basic (loss) per common share $ (0.12) $ (0.02)
=========== ===========
Diluted (loss) per common share $ (0.12) $ (0.02)
=========== ===========
Weighted average number of shares outstanding 5,306,405 7,098,644
=========== ===========
See notes to financial statements
F-4
<PAGE>
<TABLE>
<CAPTION>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
Cumulative
Unrealized
Common Stock Accumulated Gain on
Shares Amount (Deficit) Securities
------ ------ --------- ----------
<S> <C> <C> <C> <C>
Balances, September 30, 1996 7,587,000 $ 3,531,210 $ (531,985) $ 485,505
Unrealized loss on securities
available for sale (Note 3) -- -- -- (258,160)
Warrants exercised
at $.25 per share (Note 6) 60,000 15,000 -- --
Stock repurchase at
$.16 per share (Note 6) (1,000,000) (160,000) -- --
Stock repurchase at
$.18 per share (Note 6) (500,000) (90,000) -- --
Common stock issued
for oil and gas property
at $.50 per share (Note 6) 2,000 1,000 -- --
Net (loss) -- -- (154,555) --
----------- ----------- ----------- -----------
Balances, September 30, 1997 6,149,000 3,297,210 (686,540) 227,345
Stock repurchase
at $.11 per share (Note6) (1,000,000) (110,000) -- --
Common stock issued
for minimg property at $.20
per share (Note 6) 50,000 10,000 -- --
Unrealized loss on securities
for sale (Note3) -- -- -- (8,242)
Net (loss) -- -- (657,007) --
----------- ----------- ----------- -----------
Balances, September 30, 1998 5,199,000 $ 3,197,210 $(1,343,547) $ 219,103
=========== =========== =========== ===========
</TABLE>
See notes to financial statements
F-5
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
1998 1997
---- ----
Cash flows from operating activities:
Net (loss) $(657,007) $(154,555)
Items not affecting cash:
Depreciation, depletion and amortization 89,645 77,978
Impairment of oil and gas property 561,448 --
Gain on sale of securities (75,515) --
Abandonment of mineral
and oil and gas properties 33,096 33,813
Changes in operating assets and liabilities:
(Decrease) increase in accounts receivable 4,257 (9,441)
(Increase) decrease in prepaid expenses (1,595) 1,975
Decrease in accounts payable
and accrued expenses 13,051) (45,764)
--------- ---------
Net cash flows (used)
by operations (58,722) (95,994)
--------- ---------
Cash flows from investing activities:
Purchase of securities -- (65,293)
Acquisition of oil and gas and mineral properties (63,151) (67,366)
Purchase of equipment -- (32,530)
Proceeds from sale of securities 78,721 --
Proceeds from bond investment 156,445 209,600
--------- ---------
Net cash flows provided by
investing activities 172,015 44,411
--------- ---------
Cash flows from financing activities:
Exercise of stock warrants -- 15,000
Purchase of common stock (110,000) (250,000)
--------- ---------
Net cash flows (used) by
financing activities (110,000) (235,000)
--------- ---------
Net increase (decrease) in cash 3,293 (286,583)
Cash at beginning of period $ 43,094 329,677
--------- ---------
Cash at end of period $ 46,387 43,094
========= =========
See notes to financial statements
F-6
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
(CONTINUED)
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
-------------------------------------------------------
1998 1997
---- ----
Issuance of common stock for properties $ 10,000 $ 1,000
(Decrease) in unrealized gain on
securities available for sale $ (8,242) $(258,160)
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, British Columbia, Canada and
Sweden. 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
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.
STATEMENT OF CASH FLOWS
For statement of cash flow purposes, the Company considers short-term
investments with original maturities of three months or less to be cash
equivalents. Cash restricted from use in operations beyond three months is not
considered a cash equivalent.
MANAGEMENT'S USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent liabilities at the date of the financial statements and
reported amounts of revenues and expenses. Actual results could differ from
those estimates.
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 business makes it vulnerable to changes in
wellhead prices of crude oil and natural gas. Such prices have been volatile in
the past and can be expected to be volatile in the future. By definition, proved
reserves are based on current oil and gas prices and estimated reserves. Price
declines reduce the estimated quantity of proved reserves and increase annual
amortization expense (which is based on proved reserves).
F-8
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 1 - ORGANIZATION AND SUMMARY OR SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates the carrying value of assets, other than investments in
marketable securities, for potential impairment on an ongoing basis under the
tenets of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of," effective 1995. Under SFAS No. 121,
the Company periodically evaluates the carrying value of long-lived assets and
long-lived assets to be disposed of and certain identifiable intangibles and
goodwill related to those assets for potential impairment. The Company considers
projected future operating results, cash flows, trends and other circumstances
in making such estimates and evaluations and reduces the carrying value of
impaired assets to fair value.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 128 ("SFAS No. 128"), addressing earnings per share.
SFAS No. 128 changed the methodology of calculating earnings per share and
renamed the two calculations basic earnings per share and diluted earnings per
share. The calculations differ by eliminating any common stock equivalents (such
as stock options, warrants, and convertible preferred stock) from basic earnings
per share and changes certain calculations when computing diluted earnings per
share. The Company has adopted SFAS No. 128 in fiscal year 1998. Earnings per
share in fiscal 1997 is unchanged by the retroactive application of SFAS No.
128.
The following is a reconciliation of the numerators and denominators used in the
calculations of basic and diluted earnings (loss) per share for the years ended
September 30, 1998, and 1997:
<TABLE>
<CAPTION>
1998 1997
Per Per
Net Share Net Share
(Loss) Shares Amount (Loss) Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Basic Earnings per share:
Net income (loss)
and share amounts $(657,007) 5,306,405 $ (.12) $(154,555) 7,098,644 $ (.02)
Dilutive securities:
stock warrants -- -- -- -- -- --
Repurchased shares -- -- -- -- -- --
--------------------------------------------------------------------
Diluted earnings per share:
Net (loss) and assumed
share conversion $(657,007) 5,306,405 $ (.12) $(154,555) 7,098,644 $ (.02)
====================================================================
</TABLE>
CAPITAL STRUCTURE
In February 1997, the Financial Accounting Standards Board issued SFAS No. 129,
"Disclosure of Information about Capital Structure" ("SFAS No. 129"), which
requires all companies to disclose all relevant information regarding their
capital structure. SFAS No. 129 presentation is required for reporting periods
ending after December 15, 1997. Based on the capital structure disclosures
presented in the accompanying consolidated financial statements and notes
thereto, the Company does not believe that any additional disclosures will be
required as a result of adopting this pronouncement in fiscal 1998.
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"), which establishes standards
for reporting of comprehensive income. This pronouncement requires that all
F-9
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 1 - ORGANIZATION AND SUMMARY OR SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
items recognized under accounting standards as components of comprehensive
income, as defined in the pronouncement, be reported in a financial statement
that is displayed with the same prominence as other financial statements.
Comprehensive income includes changes in equity during a period, except those
resulting from investments by owners and distributions to owners. Under
comprehensive income, the Company would report unrealized gains and losses on
investments in debt and equity securities. Had the Company adopted and presented
comprehensive income accounting, the effect on the statements of operations for
fiscal 1998 and 1997 would have been additional losses of $8,242 and $258,160,
respectively. The financial statement presentation required under SFAS No. 130
is effective for all fiscal years beginning after December 15, 1997. The Company
will adopt SFAS No. 130 in fiscal 1999.
SEGMENT REPORTING
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information" ("SFAS No.
131"), which amends the requirements for a public enterprise to report financial
and descriptive information about its reportable operating segments. Operating
segments, as defined in the pronouncement, are components of an enterprise about
which separate financial information is available that is evaluated regularly by
the Company in deciding how to allocate resources and in assessing performance.
The financial information is required to be reported on the basis that is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. The disclosures required by SFAS No. 131 are effective
for all fiscal years beginning after December 15, 1997. The Company will adopt
SFAS No. 131 in fiscal year 1999.
PENSION AND OTHER POST-RETIREMENT BENEFITS
Statement of Financial Accounting Standards No. 132, "Employers' Disclosures
about Pension and Other Post-retirement Benefits" is effective for financial
statements with fiscal years beginning after December 31, 1997. Earlier
application is permitted. The new standard revises employers' disclosures about
pension and other post-retirement benefit plans but does not change the
measurement or recognition of those plans. SFAS No. 132 standardizes the
disclosure requirements for pensions and other post-retirement benefits to the
extent practicable, requires additional information on change in the benefit
obligations and fair values of the plan assets that will facilitate financial
analysis and eliminates certain disclosures previously required when no longer
useful. The Company does not expect the adoption of SFAS No. 132 to have a
material effect, if any, on its results of operation.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The FASB has recently issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133"). SFAS No. 133 established standards for recognizing all derivative
instruments including those for hedging activities as either assets or
liabilities in the statement of financial position and measuring those
instruments at fair value. This Statement is effective for fiscal years
beginning after June 30, 1999. The Company has not yet determined the effect of
SFAS No. 133 on its financial statement.
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. Proved and unproved
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.
F-10
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 1 - ORGANIZATION AND SUMMARY OR SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. Undeveloped and unproved properties are periodically
assessed for possible impairment due to unrecoverability of costs invested.
Developed and proved properties are periodically assessed under the accounting
rules of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of." 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 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 depreciated 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 TAXES
Deferred taxes are provided on the 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.
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 No. 115, the
Company's investments in securities have been classified as available for sale
because they are being held for an indefinite period of time. Under the
available for sale classification, the securities are recorded as an asset at
current market value on the balance sheet with an equal 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.
FINANCIAL INSTRUMENTS
Concentration of Credit Risk
- ----------------------------
Financial instruments, which potentially subject the Company to significant
concentrations of credit risk, consist principally of cash, trade receivables
and investments in securities.
F-11
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 1 - ORGANIZATION AND SUMMARY OR SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company maintains cash with various financial institutions. The Company
periodically evaluates the financial services of these institutions and believes
the credit risk to be minimal.
The Company has recorded trade accounts receivable from the business operations.
The Company periodically evaluates the collectibility of trade receivables and
believes the receivables to be fully collectible and the credit risk to be
minimal.
The Company's investment in U.S. Government securities are subject to moderate
price volatility due to interest rate changes; however, realization of these
investments has minimal risk. The Company's investment in common stock of two
companies is subject to substantial price volatility due to the nature of
Canadian stock markets, the nature of the extractive industries business and
variations in the Canadian dollar exchange rate.
Fair Value
- ----------
The carrying amount of the Company's financial instruments is equivalent to
their fair value as follows:
Cash and cash equivalents - The carrying amount approximates fair value
because of the short maturities of these instruments.
Marketable securities - The carrying amounts approximate the fair value
because the securities are valued at the market prices based on published
trading price information and was accounted for using the available for
sale accounting method.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), was issued in October, 1995 by the Financial
Accounting Standards Board. SFAS No. 123 provides an alternative method of
accounting for stock-based compensation arrangements, based on fair value of the
stock-based compensation utilizing various assumptions regarding the underlying
attributes of the options and stock, rather than the existing method of
accounting for stock-based compensation which is provided in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB No. 25"). The Financial Accounting Standards Board encourages entities to
adopt the fair-value based method but does not require adoption of this method.
The Company will continue its current accounting policy under APB No. 25 but has
adopted the disclosure-only provisions of SFAS No. 123 for any options and
warrants issued to employees, directors or consultants.
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 dismantlement, restoration and abandonment
costs. 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 in
order to limit credit risk. The Company's investment in bonds is 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.
F-12
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 2 - ESTIMATES AND RISKS (CONTINUED)
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 business makes it vulnerable to changes in
wellhead prices of crude oil and natural gas. Such prices have been volatile in
the past and can be expected to be volatile in the future. By definition, proved
reserves are based on current oil and gas prices. Price declines reduce the
estimated quantity of proved reserves and increase annual amortization expense
(which is based on proved reserves).
NOTE 3 - INVESTMENTS IN SECURITIES
The Company has recorded its investment in 100,000 shares of Southern Africa
Minerals Corporation ("SAMC") (Toronto Exchange), a Canadian company, and
1,950,000 shares of Layfield Resources, Inc. ("Layfield") (Vancouver Exchange),
a Canadian company, at fair value in accordance with Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (SFAS 115"). During fiscal 1998, the Company sold 50,000
shares of Layfield and 100,000 shares of Southern Africa, recognizing a gain of
$75,515. Based on the demonstrated liquidity and marketability of the Layfield
and SAMC shares, and in the accordance with SFAS 115, the Company has recorded
its investments in the stocks based on published market listings and on the
closing bid price on the stocks' 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 debt securities 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, 1998:
Unrealized Fair
Gain Value
---- -----
Available-for-sale securities:
Common stock $189,372 $192,576
Debt securities (maturing in 1 to 21 years) 29,731 325,304
-------- --------
$219,103 $517,880
======== ========
Investments in securities are summarized as follows at September 30, 1997:
Unrealized Fair
Gain Value
---- -----
Available-for-sale securities:
Common stock $207,307 $213,718
Debt securities (maturing in 1 to 3 years) 20,038 472,056
-------- --------
$227,345 $685,774
======== ========
F-13
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 4 - MINERAL PROPERTIES
DOBLER PROSPECT, BROADWATER COUNTY, MONTANA
The Dobler prospect, with capitalized costs of $59,520 at September 30, 1998 and
1997, consists of 80 acres of fee simple land (including minerals) and mineral
rights to the 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 ranch land or as
a homesite approximates the Company's capitalized costs in the prospect.
WISCONSIN MINE PROPERTY, BRITISH COLUMBIA, CANADA
The Company's Wisconsin Mine Property consists of two patented gold mining
claims covering approximately 64 acres, plus ten surrounding unpatented mining
claims. An alternative use for the property is the harvesting of timber or sale
as real estate. The fair value of the property approximates, at minimum, the
capitalized cost of $33,197 at September 30, 1998 and 1997.
SKANE ZINC PROSPECT, SWEDEN
The Skane Zinc Prospect, with capitalized costs of $35,120, consists of
approximately 19,700 acres of exploration licenses in southern Sweden. The
properties are prospective for shallow zinc, lead, minor precious metals, and
possible fluorite and barite deposits. The company owns a 70% working interest
in the project which is operated by Geoforum Scandinavia AB which owns the
remaining 30% working interest. The company is currently seeking an industry
partner to fund the exploration and development of the project.
ALL MINERAL PROPERTIES
Total mineral costs for all properties capitalized were $127,837 and $92,717 as
of September 30, 1998 and 1997, respectively.
F-14
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 5-PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at cost, less accumulated
depreciation:
1998 1997
---- ----
Land $ 12,500 $ 12,500
Machinery and equipment 77,885 84,266
--------- ---------
Total 90,385 96,766
Less: Accumulated depreciation (31,256) (17,467)
--------- ---------
Net property and equipment 59,129 79,299
--------- ---------
Pipeline 300,000 300,000
Less: Accumulated depreciation (62,836) (33,861)
--------- ---------
Net pipeline 237,164 266,139
--------- ---------
Net property and equipment $ 296,293 $ 345,438
========= =========
Depreciation expense charged to operations was $42,264 and $35,811 in fiscal
1998 and 1997, respectively.
The useful lives of property and equipment for purposes of computing
depreciation are:
Machinery and equipment 5 years
Pipeline Useful life of related 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, 1998, no shares of preferred stock have been issued.
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 1996) 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. On January 31, 1997, a shareholder exercised warrants for 60,000
shares of the Company's restricted stock at $.25 per share. On July 1, 1997, the
remaining warrants expired without extension.
F-15
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 6 - STOCKHOLDERS' EQUITY (CONTINUED)
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. 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 (See Note 12).
On April 1, 1997, the Company repurchased 500,000 shares of its restricted
common stock for cash of $90,000 ($.18 per share) from Powerhouse. On June 20,
1997, The Company repurchased 1,000,000 shares of its restricted common stock
for cash of $160,000 ($.16 per share) from Powerhouse. On November 3, 1997, the
Company repurchased 1,000,000 shares of its restricted common stock for cash of
$110,000 ($.11 per share). On December 10, 1998, the Company repurchased the
remaining 500,000 shares of its restricted common stock held by Powerhouse for
cash of $55,000 ($.11 per share).
On March 1, 1997, the Company acquired a minority working interest in the
Leavenworth, Kansas property in exchange for 2,000 shares valued at $.50 per
share. On October 16, 1997, the Company constructively issued 50,000 shares of
its restricted common stock as partial payment for an interest in the mining
prospect in Sweden. The Company valued the transaction at $10,000.
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 this 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 $.80 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.
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 shres at the date of grant. In May 1995, the Company's former
President, Stewart Jackson, exercised all of his options for 320,000 shares of
the Company's common stock at $.10 per share. On December 8, 1997, the board of
directors extended the options granted on 220,000 shares to January 13, 1999,
exercisable at $.10 per share. Options for 220,000 shares are outstanding at
September 30, 1998. Of these outstanding options, options for 160,000 shares are
held by the Company's president, A.G.Foust, and options for 60,000 shares are
held by Dru E. Campbell, assistant secretary of the Company.
F-16
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 7 - STOCK OPTION PLANS (CONTINUED)
The following schedule summarizes information with respect to options granted
under the Company's equity plans:
Weighted Average
Number of Exercise Price of
Shares Shares Under Plans
------- ------------------
Outstanding September 30, 1997 220,000 $.10
Granted - -
Exercised - -
Forfeited or expensed - -
------- -----------------
Outstanding September 30, 1997 220,000 $.10
Granted - -
Exercised - -
Forfeited or expensed - -
------- -----------------
Outstanding September 30, 1998 220,000 $.10
======= =================
NOTE 8 - INCOME TAXES
There is no current or deferred tax expense for the years ended September 30,
1998, and 1997. The Company in 1998 and 1997 had net losses for income tax
purposes.
The deferred tax consequences of temporary differences in reporting items for
financial statement and income tax purposes are recognized, if appropriate.
Realization of future tax benefits related to the deferred tax assets is
dependent on many factors, including the Company's ability to generate taxable
income within the net operating loss carryforward period. Management has
considered these factors in reaching its conclusion as to the valuation
allowance for financial reporting purposes.
The income tax effect of temporary differences comprising the deferred tax
assets and deferred tax liabilities on the accompanying balance sheet at
September 30, 1998 and 1997 is the result of the following:
1998 1997
---- ----
Deferred tax liabilities -- $ (15,193)
Deferred tax assets:
Net operating loss 209,552 145,456
Securities valuation 125,789 128,499
Oil and gas properties 171,566 --
Pipeline depreciation (49,514) (47,512)
--------- ---------
Total (457,393) (211,250)
Less: Valuation allowance (457,393) (211,250)
--------- ---------
Net deferred tax assets $ -- $ --
========= =========
At September 30, 1998 and 1997, the Company has operating loss carryforwards of
$537,312 and $380,041, respectively. The operating loss carryforwards expire in
2011.
F-17
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 9 - RELATED PARTY TRANSACTIONS
During the years ended September 30, 1998 and 1997, the Company paid $0 and
$12,670, respectively, for office rent, to Powerhouse, then a major stockholder.
At September 30, 1998 and 1997 the Company's current president owned 17.3% and
14.6% of the outstanding shares of common stock, respectively, and one of the
Company's current directors (formerly president) owned 8.9% and 7.55% as of each
year end, respectively.
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 C D
Year ended: September 30, 1997 67% 12% * *
September 30, 1998 44% * 11% 29%
* Less than 10%
F-18
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 11 - SEGMENT INFORMATION
The Company operates in three industry segments within the United States: (1)
oil and gas exploration and development, (2) gas transmission pipeline and (3)
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:
1998 1997
---- ----
Revenues:
Oil and gas $ 167,923 $ 147,415
Gas pipeline 112,770 132,599
General corporate 99,596 $ 342,074
--------- ---------
Total revenue $ 380,289 $ 342,074
========= =========
Results of operations
(Excluding overhead and interest costs)
Oil and gas $(583,069) $ (22,096)
Gas pipeline (11,169) 2,761
Mineral exploration -- --
General corporate operations (62,769) (135,220)
--------- ---------
Net income (loss) $(657,007) $(154,555)
========= =========
Depreciation, depletion, amortization and valuation
charged to identifiable assets:
Oil and gas depletion $ 57,312 $ 52,467
Oil and gas impairment 561,448
Gas pipeline 32,238 25,416
General corporate 95 95
--------- ---------
Total $ 651,093 $ 77,978
========= =========
F-19
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 11 - SEGMENT INFORMATION (CONTINUED) 1998 1997
---- ----
Capitalized cash expeditures:
Oil and gas $ 34,383 $ 78,353
========== ==========
Gas pipeline $ 3,648 $ 17,945
========== ==========
Mineral $ 25,120 $ 1,695
========== ==========
Corporate $ -- $ 1,903
========== ==========
Identifiable assets, net of accumulated depreciation,
depletion, impairment and amortization:
Oil and gas $1,119,584 $1,751,788
Gas pipeline 266,125 283,747
Mineral exploration 127,837 92,717
General corporate operations 577,155 740,750
---------- ----------
Total $2,090,701 $2,869,002
========== ==========
NOTE 12 - OIL AND GAS ACTIVITIES
Effective April 1, 1996, the Company acquired oil and gas properties and a gas
pipeline from Crescent Oil and Gas Corporation ("Crescent"), a wholly owned
subsidiary of Powerhouse (Note 6). 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 producing and proved undeveloped oil properties known as Galvan Ranch
property and proved producing and proved undeveloped oil properties and related
surface equipment in East Voss, Texas. 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. Crescent's cost basis in these assets was approximately
$3,500,000 at the time of the transaction.
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
property's purchase on April 1, 1996.
In September 1997, the Company acquired 18 producing gas wells and a gas
pipeline from Camco Oil, Inc. for $15,000. The acquisition is located adjacent
to the Company's Leavenworth, Kansas properties.
In June 1997, the Company entered into an agreement to acquire a 50% working
interest in approximately 4,600 acres of prospective Berea formation gas
reserves in Morgan County, Ohio, called the Hackney Project. The Company's share
of the acquisition cost was approximately $20,000. The Company had the right to
participate in future development of the area by drilling four wells within 12
months.
In June 1998, the Company participated in the drilling of a test well on the
project. Due to disappointing results after completion, the well was plugged and
abandoned and the Company elected to terminate its future participation in the
project. Total cost of the Company's share of the test well was $33,096.
F-20
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 12 - OIL AND GAS ACTIVITIES (CONTINUED)
CAPITALIZED COSTS
Capitalized costs associated with oil and gas producing activities, excluding
the Kansas pipeline, are as follows:
September 30,
1998 1997
---- ----
Proved properties $ 1,734,174 $ 1,722,857
Impairment allowance (561,448) --
Accumulated depreciation, depletion,
and amoritzation (102,733) (55,851)
----------- -----------
Net capitalized costs $ 1,069,993 $ 1,667,006
=========== ===========
The Company has recorded an impairment of its East Voss proved undeveloped oil
field. The impairment reduced the carrying value of the property to the 10%
discounted present value of the property's estimated cash flow (reserves).
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:
September 30,
1998 1997
---- ----
Proved developed acquisitions $ 4,935 $32,530
Exploration costs 33,096 33,813
------- -------
Total costs incurred $38,031 $66,343
======= =======
F-21
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 12 - OIL AND GAS ACTIVITIES (CONTINUED)
RESULTS OF OPERATIONS
Results of operations for oil and gas producing activities are as follows:
September 30,
1998 1997
---- ----
Revenues $ 280,693 $ 280,014
Production costs (223,934) (221,466)
Impairment of oil and gas properties (561,448) --
Depreciation and depletion (89,549) (77,883)
Abandonments -- --
--------- ---------
Results of operations
(excluding corporate overhead) $(594,238) $ (19,335)
========= =========
UNAUDITED OIL AND GAS RESERVE QUANTITIES
The following unaudited reserve estimates presented as of September 30, 1998
were prepared by Sure Engineering and by Thomas M. Carroll P.E. for September
30, 1997. 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.
F-22
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 12 - OIL AND GAS ACTIVITIES (CONTINUED)
Unaudited net quantities of proved developed reserves of crude oil (including
condensate) and natural gas (all located within the United States) are as
follows:
Changes in Proved Reserves (M BBLS) (MCF)
Estimated quantity, September 30, 1996 173 4,204
Revisions of previous estimates -- (2,797)
Acquisitions at September 30, 1997 -- 380
Production -- (87)
------ ------
Estimated Quantity, September 30, 1997 173 1,700
Revisions of previous estimates (24) 213
Production -- (113)
------ ------
Estimated quantity, September 30, 1998 149 1,800
====== ======
Proved reserves at year end Developed Undeveloped Total
--------------------------- --------- ----------- -----
Oil (M BBLS)
September 30, 1997 -- 173 173
September 30, 1998 -- 149 149
Gas (MCF)
September 30, 1997 1057 643 1700
September 30, 1998 1199 601 1800
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.
F-23
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 12 - OIL AND GAS ACTIVITIES (CONTINUED)
The following presents the principal sources of the changes in the standardized
measure of the discounted future net cash flows:
At September 30,
1998 1997
---- ----
(in thousands)
Future cash inflows $ 4,937 $ 6,472
Future production and development costs (2,672) (2,901)
Future income tax expense (39) (494)
------- -------
Future net cash flows 2,226 3,077
10% annual discount for estimated timing of cash flows (1,141) (1,490)
------- -------
Standardized measure of discounted cash flows $ 1,085 $ 1,587
======= =======
F-24
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 12 - OIL AND GAS ACTIVITIES (CONTINUED)
The following presents the principal source of the changes in the standardized
measure of discounted future net cash flows:
Years ended September 30,
1998 1997
---- ----
(in thousands)
Standardized measure of disocunted future net
cash flows, beginning of year $ 1,587 $ 1,485
------- -------
Sales and transfers of oil and gas produced, net of
production costs (69) (44)
Net changes in prices and production costs and other (965) 343
Acquisition of reserves -- 235
Changes in future development costs 23 684
Revisions of previous quantity estimates 29 (1,732)
Other (135) 240
Net changes in income taxes 456 227
Accretion of discount 159 149
------- -------
(502) 102
------- -------
Standardized measure of discounted future cash flows,
end of year $ 1,085 $ 1,587
======= =======
NOTE 13 - LEASES
The Company has an operating lease for a gas compressor that it uses in its
pipeline operation. Lease costs amounted to $19,197 and $18,876 in fiscal 1998
and 1997, respectively. The lease was renewed in October 1, 1996 for six months
at $1,573 per month. Thereafter, the lease is renewable on a month-to-month
basis.
NOTE 14 - SUBSEQUENT EVENTS
On December 10, 1998, the Company repurchased 500,000 shares of its common stock
for $55,000 or $.11 per share (see Note 6).
F-25
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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: December 29, 1998 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 December 29, 1998
- ----------------------- Officer, Principal Financial
A.G. Foust and Accounting Officer)
and Director
/s/ Stewart A. Jackson Director December 29, 1998
- -----------------------
Stewart A. Jackson
- ----------------------- Director
John J. Womack
F-26
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