<PAGE>
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
[ ] Transition report under Section 13 of 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended September 30, 1997
Commission file number: 33-15528-D
MONUMENT RESOURCES, INC.
----------------------------------------------------------
(Name of Small Business Issuer as Specified in its Charter)
Colorado 84-1028449
- ------------------------------- ------------------------------------
(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
-------------------------------------------------------------
(Address of Principal Executive Offices, Including Zip Code)
(303) 688-3993
----------------------------------------------
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 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 $342,074.
The Issuer's had 5,149,000 shares of its Common Stock outstanding at December
31, 1997. (See Notes 6 and 14 to the Financial Statements.)
The Issuer's Common Stock is not quoted on any securities exchange or on
facilities of NASDAQ, including the Bulletin Board. On November 1, 1997, the
Issuer repurchased 1,000,000 shares of its Common Stock for $110,000 or $0.11
per share. On that basis, the aggregate market value of shares held by
non-affiliates would be $382,475 (i.e. 3,477,050 shares multiplied by $0.11
per share).
Documents incorporated by reference: None.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
(a) GENERAL DEVELOPMENT OF BUSINESS. The Company was incorporated as
Copper Mountain Ventures, Inc. under the laws of the State of Colorado on
October 1, 1984. The Company's name was later changed to Monument Resource
Development, Inc. and lastly, in June 1987 to Monument Resources, Inc.
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.
"Description of Properties" and "Oil and Gas Reserves." The following summary
is qualified in its entirety by detailed information and financial statements
appearing elsewhere in the Report.
(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.
As of April 1996, the Company acquired three oil and gas properties from
Powerhouse Resources, Inc. in exchange for $225,000 in cash and three million
shares of the Company's restricted common stock. The three properties
acquired were: (1) the Galvan Ranch oil and gas prospect in Webb County,
Texas, (2) the Leavenworth County, Kansas gas wells and pipeline system, and
(3) the East Voss oil waterflood project in Knox County, Texas. The purchase
was valued by the Company for accounting purposes at $2,600,000. (See
"Financial Statements")
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 has the right to participate in future development of the area by
drilling four wells within the next 12 months; and a minimum of five wells are
required to be drilled for each twelve month period thereafter until the
entire project is completed. The Berea formation covers much of eastern Ohio
and western West Virginia, northeastern Kentucky and northern Virginia. This
formation historically has the capability of producing for 55 to 60 years with
an average life of 40 years.
As of September 3, 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 is evaluating and recompleting the
gas wells to determine their potential for additional productivity. As of
December 31, 1997, 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 (See Item 2 and "Financial Statement Notes").
2
<PAGE>
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, 1997 were
crude oil, natural gas, and other petroleum products. Crude oil, natural gas,
and other petroleum products are generally sold to various producers,
including pipeline companies, which usually service the area in which the
producing wells are located. In the fiscal year ended September 30, 1997,
crude oil and natural gas sales and related revenues accounted for $280,014 or
82% of the Company's revenues, while $40,945 or 12% was interest income. The
Company did not receive any mineral revenues during fiscal 1997.
STATUS OF ANY PUBLICLY-ANNOUNCED NEW PRODUCTS OR SERVICES
There has been no public announcement of, and no information otherwise
has been made public about, a new product or service which would require the
investment of a material amount of the Company's assets, or which otherwise is
material.
COMPETITIVE CONDITIONS
The exploration for and development and production of oil, gas, and
other minerals are subject to intense competition. The principal methods of
competition in the industry for the acquisition of oil, gas, and mineral
leases and producing properties are the payment of cash bonus payments at the
time of acquisition of leases, delay rentals, location damage supplement
payments, and stipulations requiring exploration and production commitments by
the lessee. Companies with greater financial resources, existing staff and
labor forces, equipment for exploration, and vast experience are in a better
position than the Company to compete for such leases. In addition, the
ability of the Company to market any oil and gas which it might produce could
be severely limited by its inability to compete with larger companies
operating in the same area, which may be willing or able to offer any oil and
gas produced by them at a price lower than that of the Company. Exploration
and production costs of minerals, particularly precious metals, may impede the
ability of the Company to offer such production at competitive prices.
In addition, the availability of 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.
3
<PAGE>
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 vast 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, two companies in
fiscal year ended September 30,1997 represented sales in excess of 10% of the
Company's total oil and gas revenues for the fiscal year. The availability of
oil and gas purchasers is such, however, that any buyer discontinuing
purchases from the Company could almost assuredly be replaced by another
buyer.
PATENTS, TRADEMARKS, LICENSES, FRANCHISES, CONCESSIONS, ROYALTY AGREEMENTS OR
LABOR CONTRACTS, INCLUDING DURATION
The Company does not own any patents, licenses, franchises, or
concessions except oil, gas and other mineral interests granted by
governmental authorities and private landowners.
EFFECT OF EXISTING OR PROBABLE GOVERNMENTAL REGULATION
Oil and gas exploration and production, as well as mining activities,
are open to significant governmental regulation including worker health and
safety laws, employment regulations, and environmental regulations.
Operations which occur on public lands may be subject to further regulation by
the Bureau of Land Management, the U.S. Army Corps of Engineers or the U.S.
Forest Service.
ESTIMATE OF AMOUNTS SPENT ON RESEARCH AND DEVELOPMENT ACTIVITIES
The Company has not engaged in any material research and development
activities since its inception.
COSTS AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS (FEDERAL, STATE, AND
LOCAL)
Because the Company is engaged in exploiting natural resources, it is
subject to various federal, state, and local provisions regarding
environmental and ecological matters. Therefore, compliance with
environmental laws may necessitate significant capital outlays, may materially
affect the Company's earnings potential, and could cause material changes in
the Company's proposed business. At the present time, however, the existence
of environmental laws does not materially hinder nor adversely affect the
Company's business. Capital expenditures relating to environmental control
facilities have not been material to the operations of the Company since its
inception.
4
<PAGE>
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 and a contract office secretary. Stewart A.
Jackson, one of the Company's directors, also spends some of his time on the
Company's business. The Company may hire additional personnel as required by
its operations and may also engage the services of geological and engineering
consultants from time to time to assist in its operations.
ITEM 2. DESCRIPTION OF PROPERTIES.
The Company has interests in a number of oil and gas projects and one
undeveloped gold and silver prospect in the United States, and one undeveloped
gold property in British Columbia, Canada. The Company has also recently
acquired 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. However, as
of January 13, 1998, the Company has not been informed of the results of the
third parties activities.
KANSAS GAS PROJECT - LEAVENWORTH COUNTY, KANSAS
The Company acquired an interest in this property from Powerhouse
Resources, Inc. as of April 1, 1996. The project consists of approximately
2,000 acres of oil and gas leases with right-of-ways and approximately 30
producing gas wells over 15 miles of a gas gathering and pipeline system, and
necessary equipment and facilities to produce and market the gas production.
Currently these wells are producing an aggregate of approximately 300 MCFPD.
During 1997, 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 Company anticipates that the Camco/Heim
acquisition will add significant reserves and daily production to the Kansas
Gas Project. This acquisition added over 379,000 MCF in proved reserves and
has increased the current production by approximately 150 MCFPD, bringing the
project's capable daily production to approximately 450 MCFPD. Market
conditions may require that the Company's actual sales for a given period are
less than its capability.
EAST VOSS WATERFLOOD - KNOX COUNTY, TEXAS
The Company acquired an interest in this property from Powerhouse
Resources, Inc. as of April 1, 1996. The property consists of approximately
330
5
<PAGE>
acres of unitized oil and gas leases containing 21 oil and injection wells.
The field is currently on a standby status and the Company is seeking an
industry partner to develop the secondary waterflood potential of the project.
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 4 years ago and are currently generating a total of
approximately $1,000 per month cash flow to the Company.
GOLD MINING PROSPECTS
DOBLER MINE PROSPECT, BROADWATER COUNTY, MONTANA
The Company purchased a 100% ownership interest in a certain mining
property in Broadwater County, Montana, known as the Dobler Mine prospect.
The prospect consists of 80 acres of fee land (including minerals) and mineral
rights to 280 surrounding acres, which the Company acquired during 1989 by
exercising an option it held.
The 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.
Reevaluation of all data including drilling and mining records, plus
field examination, was undertaken in 1995. The Company plans to hold this
property for future joint venture or development upon an increase in gold
prices. In addition, the property has a residual value for its real estate
potential.
DIAMOND PROSPECTS
BOTSWANA DIAMOND PROJECT
In July 1993, the Company acquired a 25% interest in three target areas
covered by fourteen separate prospecting licenses in the Republic of Botswana
in the central southern portion of the continent of Africa.
The Company entered into agreements with Layfield Resources Inc. and
Kingswood Resources Inc. covering exploration on these licenses. Ownership of
the licenses was the Company - 25%; Layfield - 25%; and Kingswood - 50%. The
6
<PAGE>
Company paid $6,250 to acquire the rights to information on which filing of
licenses was based and in May 1994 issued 50,000 shares of its common stock
pursuant to this agreement.
In 1994, the Company expended $28,762 in exploration costs and exchanged
its interest in the prospect for 1,500,000 shares of common stock in Southern
Africa Mineral Corporation, a Canadian public company ("SAF").
In 1995, the Company sold 1,300,000 shares of common stock of SAF to
Layfield Resources, Inc. ("Layfield") in exchange for 3,500,000 shares of
common stock of Layfield; and $113,405 (U.S.) in cash pursuant to a Letter
Agreement dated May 10, 1995; and signed by the Company, Layfield and Yorkton
Securities, Inc. ("Yorkton"). The Agreement also required that Yorkton would
immediately purchase from the Company 1,000,000 of Layfield's shares for
$291,223 (U.S.) (See Notes to Financial Statements.")
In 1996, the Company sold 500,000 shares of Layfield common stock for
$187,546. The Company plans to hold the balance of its Layfield and Southern
Africa Mineral Corporation shares (2,000,000 and 200,000 shares respectively)
and market them at an appropriate time.
NEW MINERAL PROSPECTS
The Company continues to pursue the evaluation of a number of oil and
gas and mineral prospects. During their respective careers, management has
made numerous contacts in the oil and gas and mining industry and has
accumulated knowledge concerning location, current ownership, and other
information with respect to prospects. Based on this experience and
knowledge, management believes that the Company will be able to continue
evaluation of prospects on an efficient basis. Even if properties are
acquired, substantial additional financing will be required to pursue
particular projects. The Company's primary emphasis is directed toward oil
and gas and precious metals properties although other situations and minerals
may be examined.
In addition to work on currently owned prospects, efforts are being made
to add new prospects. Areas of known favorability for oil and gas and
minerals are being studied. Prospect evaluation will be an ongoing effort,
utilizing data generated from a number of sources.
The Company has recently entered into an agreement to acquire a mineral
project in Southern Sweden. The agreement is with Michael Bromely-Challenor
d.b.a. Geoforum and covers over 8,000 hectares (19,700 acres) of permitted
lands. The properties consist of three exploration permits with the
government of Sweden and are valid for three years from date of issuance. The
Company's commitment is to pay $20,000 cash and issue 50,000 shares of the
Company's 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
(LIFTING)
The table below sets forth the net quantities of oil and gas production
(net of all royalties, overriding royalties, and production due to others)
7
<PAGE>
attributable to the Company for the fiscal year ended September 30, 1997 and
the average sales prices, average production costs, and direct lifting costs
per unit of production.
Year Ended September 30,
Net Production 1997 1996
Oil (BBLS) 1,440 978
Gas (MCF) 86,842 71,171
Average Sales Prices
Oil (per BBL) $ 12.67 $ 17.84
Gas (per MCF) $ 3.01 $ 2.74
Average Production Cost (1)
Per equivalent MCF of gas $ 1.88 $ 3.29
- ---------------
(1) Production costs include all expenses, depreciation, depletion and
amortization, lease operating expenses, lifting costs and all associated
taxes.
RESERVE INFORMATION
OIL AND GAS RESERVES
Oil and gas reserves for the Company's properties have been evaluated by
Thomas M. Carrol P.E. for 1997, and by Resource Services International for
1996, both independent petroleum engineers.
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 proven developed oil and
gas reserves and proven undeveloped oil and gas reserves of the Company for
the years ended September 30, 1996 and 1997. See Note 12 to the Consolidated
Financial Statements and the above discussion.
8
<PAGE>
Proved Reserves
Oil (M BBLS) Gas (MCF)
Estimated quantity, September 30, 1995 - -
Revisions of previous estimates - -
Acquisitions at April 1, 1996 173 7,524
Sales of reserves - 3,288
Production - (32)
Estimated quantity, September 30, 1996 173 4,204
Revision of previous estimates - (2,797)
Acquisition at September 30, 1997 - 380
Production - (87)
Estimated quantity, September 30, 1997 173 1,700
DEVELOPED AND UNDEVELOPED RESERVES
Developed Undeveloped Total
Oil (M BBLS)
September 30, 1996 - 173 173
September 30, 1997 - 173 173
Gas (MCF)
September 30, 1996 1,138 3,066 4,204
September 30, 1997 1,057 643 1,700
TITLE
OIL AND GAS
As is customary in the oil and gas industry, the Company performs only a
perfunctory title examination at the time of acquisition of undeveloped
properties. Prior to the commencement of drilling, in most cases, and in any
event where the Company is the Operator, a thorough title examination is
conducted and significant defects remedied before proceeding with operations.
The Company believes that the title to its properties is generally acceptable
to a reasonably prudent operator in the oil and gas industry. The properties
owned by the Company are subject to royalty, overriding royalty, and other
interests customary in the industry, liens incidental to operating agreements,
current taxes and other burdens, minor encumbrances, easements, and
restrictions. The Company does not believe that any of these burdens
materially detract from the value of the properties or will materially
interfere with their use in the operation of the Company's business.
The Company has purchased producing properties on which no updated title
opinion was prepared. In such cases, the Company has retained third party
attorneys to review title.
MINING
The Company does not have title opinions on its mining claims or leases
and, therefore, has not identified potential adverse claimants nor has it
quantified the risk that any adverse claimant may successfully contest all or
a portion of its title to the claims. Furthermore, the validity of all
unpatented mining claims is dependent upon inherent uncertainties such as the
sufficiency of the discovery of minerals, proper 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
9
<PAGE>
open to location by others unless the claimant is in actual possession of and
diligently working the claim (pedis possession). 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 December 31, 1997, 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 two year lease in Denver, Colorado at a cost
of $750 per month.
ITEM 3. LEGAL PROCEEDINGS.
The Company knows of no material pending legal proceedings to which the
Company is a party or of which any of its properties is the subject and no
such proceedings are known to the Company to be contemplated by governmental
authorities. The Company knows of no legal proceedings, pending or
threatened, or judgments entered against, any Director or Officer of the
Company in his capacity as such.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were not matters submitted to a shareholder vote during the fourth
quarter of the fiscal year ended September 30, 1997.
10
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) MARKET INFORMATION. The Company's common stock was traded on the
over-the-counter market until November 1992. The common stock has not been
quoted since November 1992.
(b) HOLDERS. The estimated number of beneficial owners of the
Company's common stock at January 13, 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, 1996, the Company had $953,509 in current assets and
$876,758 in working capital. As of September 30, 1997, the Company had
$530,085 in current assets and $499,098 in working capital. The decrease in
working capital and current assets from September 30, 1996 to September 30,
1997 was due primarily to (1) the repurchase of the Company's common shares
from a third party, totaling $250,000, (2) additions to and reworking of the
Kansas Gas Project, totaling approximately $65,000, and (3) payment of
accounts payable to a shareholder of approximately $54,000.
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
$100,000 will be needed in 1998 to fund necessary holding expenses on the
Company's properties.
The Company continues to seek joint venture financing for its properties
and to acquire properties with near term revenue generating capability.
Management's efforts to evaluate, identify and/or acquire such revenue
generating prospects and to further develop its existing properties have been
ongoing during this past year and, while management is optimistic, there is no
assurance that the Company will be successful in securing the required
capital.
RESULTS OF OPERATIONS
The Company's revenue increased from $306,759 in 1996 to $342,074 in
1997. The increase was primarily due to an increase in oil and gas sales from
$88,786 in 1996 to $280,014 in 1997. This increase in oil and gas sales was
offset by
11
<PAGE>
the Company's significant gain on the sale of investments in 1996 of $187,546,
which did not reoccur in 1997. Interest and other income also increased by
$31,633 due to the performance of the Company's interest bearing securities,
tax accrual elimination and a gain on the final settlement with the accounts
payable to a shareholder.
The Company's statement of operations shows expenses of general and
administrative costs of $197,185 in fiscal 1997 compared to $125,601 in fiscal
1996. The increase in general administrative expense was due to the increased
legal and accounting costs associated with the acquisition and operation of
the oil and gas properties. Abandonment of mineral and oil and gas properties
and exploration costs decreased from $64,246 in fiscal 1996 to $33,813 in
fiscal 1997. The Company abandoned interests in three oil and gas prospects
and expensed its initial activity in the Ohio Gas Project in fiscal 1997.
Such abandonment will most likely be an ongoing process as the Company
continues to attempt to upgrade its property inventory. The Company follows
the accounting policy of deferring all acquisition and exploration expenses
associated with its mining properties. Accordingly, these costs are not
reflected as current expenses but are rather capitalized on the Company's
balance sheet. Relating to oil and gas, the Company follows the successful
efforts method of accounting policy. The Company's oil and gas operations
incurred operating expenses of $187,653 in 1997 compared to $75,938 in 1996.
This increase in oil and gas operating expense is primarily due to
having a full year of operations in 1997 for the properties acquired from
Powerhouse Resources, Inc. compared to only six months operating expenses for
1996. The Company also expensed approximately $30,000 of well workovers and
reconditioning in the Kansas Gas Project during 1997.
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, 1997, the Company has converted all of its
computer software to accommodate the "Year 2000" issue. The amount expensed in
1997 was immaterial.
ITEM 7. FINANCIAL STATEMENTS.
The Report of the Independent Certified Public Accountants appearing at
Page F-1 & F-2 and the Financial Statements and Notes to Financial Statements
appearing at Pages F-3 through F-20 hereof are incorporated herein by
reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
12
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The Directors and Officers of the Company are as follows:
Served as a
Name Age Position Director Since
- ----------------- --- ------------------ -----------------
A.G. Foust 54 President and a October 1, 1984
Director
Stewart A. Jackson 55 Director January 1, 1992
John J. Womack 77 Director June 20, 1986
Dennis C. Dowd 56 Director (Resigned) April 5, 1996 to
November 1, 1997
Ray K. Davis 55 Secretary N/A
Dru E. Campbell 46 Assistant Secretary N/A
Effective November 1, 1997, Dennis C. Dowd resigned as a Director, Dru
E. Campbell resigned as Secretary of the Company and Ray K. Davis was
appointed as the new Corporate Secretary. Dru E. Campbell was appointed
Assistant Secretary.
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
13
<PAGE>
Consolidated Oil and Gas, Inc., operating out of Denver, Colorado. From June,
1964 through April, 1968, Mr. Foust was employed as a chemical project
engineer with Shell Oil Company, designing and supervising production of water
and chemical flood installations. Mr. Foust has a BS degree in Chemical
Engineering from Montana State University.
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 32 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 Directors of Minerals Engineering Company. General Womack has been
retired since June, 1984.
Dennis C. Dowd became a Director of the Company on April 5, 1996 and
resigned effective November 1, 1997. He is the President of Powerhouse
Resources, Inc., a company which is involved in the building of small power
stations in China. A substantial portion of the Company's oil and gas assets
were purchased from a wholly-owned subsidiary of Powerhouse in an exchange of
cash and stock. Powerhouse currently owns 500,000 shares of the Company's
common stock and Mr. Dowd represented Powerhouse on the Company's Board of
Directors. Mr. Dowd is also registered as a securities broker with Cohig &
Associates and was registered with John C. Kinnard from 1988 to 1995. Mr.
Dowd served as
14
<PAGE>
President of B.J. Leonard & Co. (1986-1988) and was senior Vice President from
1980 to 1985. Mr. Dowd entered the securities business in 1966 with Bosworth
Sullivan and Company (Dain Bosworth). Mr. Dowd has served on the NASD
Arbitration Committee since 1986 and served as a member of the NASD District
No. 3 Business Conduct Committee from 1988 to 1991. Mr. Dowd attended Regis
University, Denver, Colorado, where he received a Bachelor of Science degree
in business in 1963.
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 27 years office and secretarial experience.
No family relationship exists between or among any of the persons named
above except that A.G. Foust and Dru Campbell are married to each other. None
of the Company's Directors are directors of any other Company having a class
of equity securities registered under the Securities Exchange Act of 1934 or
any Company registered as an investment Company under the Investment Company
Act of 1940, except Dennis Dowd who is also an officer and director of
Powerhouse Resources, Inc. which is registered under the Securities Act of
1934. There are persons pursuant to which a Director was selected or
nominated as a Director. All persons whose activities will be material to the
operations of the Company have been described herein.
The Company's Directors, Officers and 10% or greater shareholders are
not presently subject to Section 16 (a) of the Exchange Act.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth information regarding executive
compensation for the Company's President and Chief Executive Officer. No
executive officer received compensation in excess of $100,000 for either of
the years ended September 30, 1996 and 1997.
15
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
---------------------------
Annual Compensation Awards Payouts
--------------------------- ------------------- -------
Name and Restricted Options/
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, 1996 $30,000 -0- -0- -0- -0- -0- -0-
President 1997 $46,000 -0- -0- -0- -0- -0- -0-
and Chief
Executive
Officer
</TABLE>
OPTION/SAR GRANTS IN FISCAL YEAR ENDED SEPTEMBER 30, 1997
Percent of Total
Options/SARs
Options/ Granted to Exercise
SARs Employees in or Base
Name (Number) Fiscal Year Price ($/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.
INDEMNIFICATION
Pursuant to its Bylaws and the Colorado Business Corporation Act, the
Company shall indemnify each Director and Officer against expenses, judgments,
fines, and amounts paid in settlement actually and reasonably incurred by him
in connection with any action, suit or proceeding which he may be made a party
by reason of his being or having been made a Director or Officer of the
Company, unless he failed to meet certain standards of conduct. If a Director
is wholly successful, on the merits or otherwise, he shall be indemnified
against reasonable expenses.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "1933 Act") may be permitted to Directors, Officers or
persons controlling the Company pursuant to the foregoing provisions, the
Company has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
1933 Act and is therefore unenforceable.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of January 13, 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:
16
<PAGE>
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership Class
- ------------------------ -------------------- ----------
<C> <S> <S>
A.G. Foust 900,000<FN1> 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<FN2> 3.54%
4810 West Delaware Drive
Larkspur, CO 80118
John J. Womack 125,000 2.43%
208 E. Bannack
Dillon, MT 59725
Dennis C. Dowd 500,000<FN3> 9.91%
1624 Market Street, Suite 303
Denver, CO 80202
Powerhouse Resources, Inc. 500,000<FN3> 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.
<FN>
<FN1>
Includes 740,000 shares of common stock owned by Mr. Foust and 160,000 shares
underlying stock options held by Mr. Foust. Does not include the 122,500
shares of common stock owned by Mr. Foust's wife who is a part-time employee
and Assistant Secretary of the Company. Mr. Foust disclaims beneficial
ownership of his wife's shares.
<FN2>
Includes 122,500 shares of common stock owned by Ms. Campbell and 60,000
shares underlying stock options held by Ms. Campbell.
<FN3>
Dennis C. Dowd is a Director of Powerhouse Resources, Inc. and thus may have
some effective control over the Powerhouse shares. Mr. Dowd was Powerhouse's
representative on the Company's Board of Directors until November 1, 1997.
</FN>
</TABLE>
The Company is unaware of any arrangements, including a pledge of
securities, which may cause a change in control of the Company.
The Company knows of no arrangements the operation of which may result
in a change of control.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
No Director or Officer of the Company, nominee for election as a
Director, security holder who is known to the Company to own of record or
beneficially more
17
<PAGE>
than 5% of any class of the Company's voting securities, or any relative or
spouse of any of the foregoing persons, or any relative of such spouse, who
has the same home as such person or who is a director or officer of any parent
or subsidiary of the Company other than the stock repurchases from Powerhouse
Resources, Inc., has had any transaction or series of transactions exceeding
$60,000, since the beginning of the Company's last fiscal year, or has any
presently proposed transaction, to which the Company was or is to be a party
during 1997, in which any of such persons had or is to have any direct or
indirect material interest.
The Company repurchased a total of 2,500,000 shares of its common stock
from Powerhouse Resources, Inc. The purchases, which totaled $360,000 in cost
to the Company occurred on March 31, 1997, June 20, 1997, and November 1, 1997
for 500,000 shares, 1,000,000 shares and 1,000,000 shares, respectively.
Powerhouse Resources, Inc. currently owns 500,000 shares of the Company's
common stock.
18
<PAGE>
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
fiscal quarter ended September 30, 1997.
19
<PAGE>
INDEX TO FINANCIAL STATEMENTS
TITLE
PAGE
Independent Auditors' Reports F-1, F-2
Balance Sheets as of September 30, 1997 and 1996 F-3, F-4
Statements of Operations for the Years Ended
September 30, 1997 and 1996 F-5
Statements of Stockholders' Equity for the
Years Ended September 30, 1996 and 1997 F-6
Statements of Cash Flows for the Years Ended
September 30, 1997 and 1996 F-7, F-8
Notes to Financial Statements F-9 to F-20
20
<PAGE>
Gordon, Hughes & Banks, LLP
Certified Public Accounts
Professional Corporation
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, 1996, and the related statements of
operations, stockholders' equity and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Monument Resources, Inc. and
Subsidiaries as of September 30, 1996, and the results of its operations and
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Gordon, Hughes & Banks, LLP
Gordon, Hughes & Banks, LLP
December 30, 1997
Denver, Colorado
F-1
<PAGE>
Holben, Boak, Cooper & Co
Certified Public Accounts
Professional Corporation
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, 1996, and the related statements of
operations, stockholders' equity and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Monument Resources, Inc, and
Subsidiaries as of September 30, 1996, and the results of its operations and
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Holben, Boak, Cooper & Co.
HOLBEN, BOAK, COOPER & CO.
January 15, 1997
Denver, Colorado
F-2
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
BALANCE SHEETS
SEPTEMBER 30, 1997 AND 1996
ASSETS 1997 1996
Current assets:
Cash $ 43,094 $ 329,677
Investment in securities (Note 3) 452,018 596,325
Accounts receivable 25,394 15,953
Prepaid expense 9,579 11,554
Total current assets 530,085 953,509
Mineral properties (Note 4) 92,718 91,023
Proved and unproved oil and gas
properties, successful efforts
method, net of accumulated
depletion (Note 12) 1,667,006 1,676,316
Property and equipment:
Gas pipeline, net of
accumulated depreciation (Note 5) 266,139 289,978
Property and equipment, net of
accumulated depreciation (Note 5) 79,299 58,741
Net property and equipment 345,438 348,719
Investment in securities,
at market (Note 3) 233,755 491,914
Total assets $2,869,002 $3,561,481
(Continued)
See notes to financial statements
F-3
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
BALANCE SHEETS
SEPTEMBER 30, 1997 AND 1996
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
Current liabilities:
Accounts payable and accrued expenses $ 30,987 $ 22,320
Accounts payable, stockholder (Note 9) - 54,431
Total current liabilities 30,987 76,751
Commitments (Notes 6,9, and 13)
Stockholders' equity (Notes 3 and 6):
Preferred stock, no par value,
authorized 1,000,000 shares; none
issued - -
Common stock, no par value,
authorized 10,000,000 shares;
issued and outstanding 6,149,000
in 1997 and 7,587,000 in 1996 3,297,210 3,531,210
Accumulated (Deficit) (686,540) (531,985)
Unrealized gain on investment
in securities (Note 3) 227,345 485,505
Total stockholders' equity 2,838,015 3,484,730
Total liabilities and
stockholders' equity $2,869,002 $3,561,481
See notes to financial statements
F-4
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND 1996
1997 1996
Revenue:
Oil and gas sales $ 147,415 $ 67,881
Gas pipeline 132,599 20,905
Gain on sale of investments (Note 3) - 187,546
Interest 40,945 30,427
Other Income 21,115 -
Total 342,074 306,759
Expenses:
Oil and gas operating expense 103,552 54,578
Pipeline operating expense 84,101 21,360
General and administrative 197,185 125,601
Abandonment of mineral and oil
and gas properties and
exploration costs (Notes 4 and 12) 33,813 64,246
Depreciation and amortization 77,978 28,718
Total 496,629 294,503
Net (loss) income $(154,555) $ 12,256
Net (loss) income per share of common stock (.02) -
Weighted average number of
shares outstanding 7,098,644 6,087,092
See notes to financial statements
F-5
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND 1996
Cumulative
Unrealized
Common Stock Accumulated Gain on
Shares Amount (Deficit) Securities
Balances, September 30, 1995 4,587,000 $1,156,210 $ (544,241) $ 168,591
Common stock issued for oil
and gas properties at $.79
per share (Note 6) 3,000,000 2,375,000 - -
Unrealized gain on securities
available for sale (Note 3) - - - 16,914
Net income - - 12,256 -
Balances, September 30, 1996 7,587,000 3,531,210 (531,985) 485,505
Unrealized loss on securities
available for sale (Note 3) - - - (258,159)
Warrants exercised 60,000 15,000 - -
at $.25 per share (Note 6)
Stock repurchase at (1,000,000) (160,000) - -
at $.16 per share (Note 6)
Stock repurchase (500,000) (90,000) - -
at $.18 per share (Note 6)
Common stock issued 2,000 1,000 - -
issued for oil and gas
property at $.50 per share
(Note 6)
Net (loss) - - (154,555) -
Balances, September 30, 1997 6,149,000 $3,297,210 $ (686,540) $ 227,346
See notes to financial statements
F-6
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND 1996
1997 1996
Cash flows from operating activities:
Net (loss) income $(154,555) $ 12,256
Items not affecting cash:
Amortization and depreciation 77,978 28,718
Gain on sale of securities - (187,546)
Abandonment of mineral and oil and
gas properties 33,813 64,246
Changes in operating assets and liabilities:
(Increase) in accounts receivable (9,441) (15,953)
(Increase) decrease in prepaid expenses 1,975 (11,554)
Increase (decrease) in accounts payable
and accrued expenses (45,764) 71,576
Net cash flows (used) provided
by operations (95,994) (38,257)
Cash flows from investing activities:
Purchase of securities (65,293) (596,325)
Advance to related party - (300,000)
Repayment of advance to related party - 300,000
Acquisition of oil and gas and mineral properties (67,366) (235,241)
Purchase of equipment (32,530) -
Proceeds from sale of oil and gas properties - 565,000
Proceeds form sale of securities - 187,546
Proceeds from bond investment 209,600 -
Net cash flows provided (used) by
investing activities 44,411 (79,020)
Cash flows from financing activities:
Exercise of stock warrants 15,000 -
Purchase of common stock (250,000) -
Net cash flows (used) by
financing activities (235,000) -
Net increase (decrease) in cash (286,583) (117,277)
Cash at beginning of period 329,677 446,954
Cash at end of period $ 43,094 $ 329,677
(Continued)
See notes to financial statements
F-7
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND 1996
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
1997 1996
Issuance of common stock for properties $ 1,000 $2,375,000
Increase (decrease) in unrealized gain on
securities available for sale $ (258,159) $ 38,652
Income taxes paid $ - $ 1,000
See notes to financial statements
F-8
<PAGE>
MONUMENT RESOURCES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Monument Resources, Inc. and Subsidiaries (the "Company") was organized under
the laws of the State of Colorado on October 1, 1984. The Company is in the
business of acquiring and brokering mineral and oil and gas properties and
exploring, developing and selling production from its oil and gas properties.
The Company's mineral properties are in Montana and British Columbia, Canada.
The Company's oil and gas properties are in Webb and Knox counties, Texas,
Leavenworth County, Kansas and Kimball County, Nebraska. The Company also
operates a gas pipeline in conjunction with its Leavenworth gas wells.
The Company has a substantial investment in mineral and oil and gas
properties. The Company may not have sufficient capital to fully explore its
mineral holdings or to develop some of its oil and gas properties, which will
require significant investment. The Company has in the past relied on joint
venture partners to supply most of the funds needed to explore or develop its
properties, and may also rely on such partners for similar funding in the
future. As a result, the ability of the Company to obtain outside funding may
be critical to the Company's exploration and development of some of its
properties. As a result of these factors, recovery by the Company of its
investments in these properties cannot be assured.
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned Canadian subsidiary, formed for the purpose of
owning real property in British Columbia, and its wholly owned Kansas
subsidiary, COG Transmission Corporation, acquired in 1996. All intercompany
transactions and balances have been eliminated in consolidation.
MINERAL PROPERTIES
Costs of acquiring, exploring and developing specific mineral properties are
capitalized on a property by property basis until the commercial viability of
each property is determined. When a property reaches the production stage,
the related capitalized costs will be amortized, using the units of production
method on the basis of periodic estimates of ore reserves. Mining properties
are periodically assessed for impairment of value and any impairments are
charged to operations at the time of impairment. Should a property be sold or
abandoned, its capitalized costs are charged to operations and gain or loss
recognized.
OIL AND GAS PROPERTIES
The company follows the successful efforts method of accounting for its oil
and gas activities. Under this accounting method, costs associated with the
acquisition, drilling and equipping of successful exploratory and development
wells are capitalized. Geological and geophysical costs, delay rentals and
drilling costs of unsuccessful exploratory wells are charged to expense as
incurred. Depletion and depreciation of the capitalized costs for producing
oil and gas properties are provided by the unit-of-production method based on
proved oil and gas reserves.
F-9
<PAGE>
Undeveloped properties are periodically assessed for possible impairment due
to unrecoverability of costs invested. Cash received for partial conveyances
of property interests are treated as a recovery of cost and no gain or loss is
recognized.
PROPERTY, EQUIPMENT AND GAS PIPELINE
Depreciation 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 (LOSS) PER COMMON SHARE
Income or (loss) per common share is computed by dividing the net income
(loss) by the weighted average number of shares of common stock outstanding.
Warrants and stock options are not included in the computation if the effect
of such inclusion would be antidilutive and would increase the earnings or
decrease loss per share.
STATEMENT OF CASH FLOWS
For the purposes of the statement of cash flows, the Company has determined
that certificates of deposit and investments with maturities of three months
or less will be treated as cash and cash equivalents for purposes of the
statements of cash flows.
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.
The Company follows Statement of Financial Accounting Standards ("SFAS") 115,
"Accounting for Certain Investments in Debt and Equity Securities," in
accounting for its security investments. In accordance with SFAS 115, the
Company's investments in securities have been classified as available for sale
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 equivalent 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.
F-10
<PAGE>
FINANCIAL INSTRUMENTS
Concentration of Credit Risk
Financial instruments which potentially subject the Company to significant
concentrations of credit risk consist principally of cash and investments in
securities.
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'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 are equivalent to
the fair value of the investments.
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
information and was accounted for using the available for sale accounting
method.
RECLASSIFICATIONS
To facilitate comparability with the presentation of the current year, the
Company made reclassifications to 1996 regarding the gas operations and the
oil and gas segment data to separately present the gas pipeline information.
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-11
<PAGE>
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 200,000 shares of Southern Africa
Minerals Corporation ("SAMC") (Toronto Exchange), a Canadian company, and
2,000,000 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 1996, the Company
sold 500,000 shares of Layfield, recognizing a gain of $187,546. Based on the
demonstrated liquidity and marketability of the Layfield shares, and in 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, 1997:
Unrealized Fair
Gain Value
Available-for-sale securities:
Common stock $ 207,307 $ 233,755
Debt securities (maturing in 1 to 22 years) 20,038 452,019
$ 227,345 $ 685,774
Investments in securities are summarized as follows at September 30, 1996:
Unrealized Fair
Gain Value
Available - for - sale securities:
Common stock $ 485,505 $ 491,914
Debt securities (maturing in 1 to 3 years) - 596,325
$ 485,505 $1,088,239
NOTE 4 - MINERAL PROPERTIES
DOBLER PROSPECT, BROADWATER COUNTY, MONTANA
The precious metals Dobler prospect, with capitalized costs of $59,520 at
September 30, 1997 and $57,825 at September 30, 1996, consists of 80 acres of
fee simple land (including minerals) and mineral rights to the 280 surrounding
acres.
F-12
<PAGE>
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
real estate. The fair value of the property approximates the capitalized cost
of $33,198 at September 30, 1997 and 1996.
ALL MINERAL PROPERTIES
Total mineral costs for all properties capitalized were $92,718 and $91,023 as
of September 30, 1997 and 1996, respectively. The Company wrote off mineral
property costs of $5,904 in the year ended September 30, 1996.
NOTE 5 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at cost, less accumulated
depreciation:
1997 1996
Land $ 12,500 $ 12,500
Machinery and equipment 84,266 51,736
Total 96,766 64,236
Less: Accumulated depreciation (17,467) (5,495)
Net property and equipment 79,299 58,741
Pipeline 300,000 300,000
Less: Accumulated depreciation (33,861) (10,022)
Net pipeline 266,139 289,978
Net property and equipment $345,438 $348,719
NOTE 5 - PROPERTY AND EQUIPMENT
Depreciation expense charged to operations was $35,811 and $15,033 in fiscal
1997 and 1996, 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, 1997, no shares of preferred stock have been issued.
F-13
<PAGE>
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 for $.25 per
share. On July 1, 1997, the remaining warrants expired without extension.
Effective April 1, 1996, the company acquired various oil and gas properties
and a gas pipeline from Crescent Oil and Gas Corporation ("Crescent"), a
wholly owned subsidiary of Powerhouse Resources, Inc. ("Powerhouse"), in
exchange for 3,000,000 shares of the Company's common stock and $225,000. As
part of the sale, the Company agreed that Powerhouse may demand that the
Company undertake a registration of Powerhouse's 3,000,000 shares for sale to
the public and that the right to make such a demand expires on April 1, 1999.
Should a registration occur, Powerhouse is obligated to pay half of the
registration costs. 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). As of December 30, 1997, Powerhouse owns
500,00 shares of the Company's common stock.
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.
During 1986, the Company adopted a Directors' Stock Option Plan (the
"Directors' Plan") for the benefit of the non-employee directors of the
Company. The exercise price of the shares covered by options granted pursuant
to the Directors' Plan must be $1.60 per share ($.80 per share after a 2 for 1
stock split). 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 shares at the date of grant. In May 1995, the Company's former
President, Stuart Jackson, exercised all of his options for 320,000 shares of
the Company's common stock at $.10 per share. Options for 220,000 shares are
outstanding at September 30, 1997.
F-14
<PAGE>
NOTE 8 - INCOME TAXES
Deferred income taxes arise from temporary differences resulting form income
and expense items reported for financial accounting and tax purposes in
different periods. Deferred taxes are classified as current or noncurrent,
depending on the classification of the assets and liabilities to which they
relate. Deferred taxes arising from temporary differences that are not
related to an asset or liability are classified as current or noncurrent
depending on the periods in which the temporary differences are expected to
reverse.
There is no provision, nor components, of such provision for income tax for
the years ended September 30, 1997 and 1996, because there was no tax due for
these periods.
The provision for income taxes for the years ended September 30, 1997 and 1996
differs from the amounts computed by applying the federal tax rate to income
before income taxes. The reasons for the differences are as follows:
As a percent of pretax income: 1997 1996
Tax at federal statutory rate - 20.0%
Property Write-off - (20.0%)
Provision for income taxes 0.0% 0.0%
Net deferred tax assets at September 30, 1997 and 1996 consist of the
following:
1997 1996
Deferred tax liabilities $ (15,193) $ (3,890)
Deferred tax assets:
Net operating loss 145,456 -
Securities valuation 128,499 128,499
Pipeline depreciation (47,512) (19,442)
Total 211,250 105,167
Less: Valuation allowance (211,250) (105,167)
Net deferred tax assets $ - $ -
At September 30, 1997 and 1996, the Company has operating loss carryforwards
of $288,000 and $0, respectively. The operating loss carryforwards expire in
2011.
NOTE 9 - RELATED PARTY TRANSACTIONS
During the years ended September 30, 1997 and 1996, the Company paid $ 3,366
and $5,174, respectively, to the wife of the Company's current president for
administrative and secretarial services. She is also a shareholder and
officer of the Company.
The Company utilizes on a rent-free basis some office furniture and equipment
owned by the officers.
F-15
<PAGE>
Prior to the Company's purchase of the Powerhouse oil and gas properties in
April 1996, the Company advanced Powerhouse $300,000 to be used by Powerhouse
to pay off liens and creditors on the properties. Powerhouse paid the
creditors and then repaid the $300,000 to the Company in April 1996. At
September 30, 1996, the Company owed Powerhouse $54,431, which was the final
amount due on the purchase of the oil and gas properties. The balance due of
$54,431 was paid in full in October 1996.
During the years ended September 30, 1997 and 1996, the Company paid $12,670
and $8,178 for office rent, respectively to Powerhouse, a major shareholder.
At September 30, 1997 and 1996, the Company's current president owned 12.03%
and 9.75% of the outstanding shares of common stock, respectively, and one of
the Company's current directors (formerly president) owned 7.55% and 6.12% 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
Year ended: September 30, 1996 61% 23% *
September 30, 1997 * 67% 12%
*Less than 10%
NOTE 11 - SEGMENT INFORMATION
The Company operates in two industry segments within the United States: (1)
oil and gas exploration and development and (2) mineral exploration and
development.
Identified assets by industry are those assets that are used in the Company's
operations in each industry. Corporate assets are principally cash,
furniture, fixtures, and equipment.
Segment information consists of the following:
1997 1996
Revenues:
Oil and gas $ 147,415 $ 67,881
Gas pipeline 132,599 20,905
General corporate 62,060 217,973
Total revenue $ 342,074 $ 306,759
Results of operations
(Excluding overhead and interest costs)
Oil and gas $ (22,096) $ (73,757)
Gas pipeline 2,761 (455)
Mineral exploration - (5,904)
General corporate operations (135,220) 92,372
Net income (loss) $ (154,555) $ 12,256
Depreciation, depletion, amortization and
valuation charged to identifiable assets:
Oil and gas depletion $ 52,467 $ 18,697
Gas pipeline 25,410 10,021
General corporate 95 -
Total $ 77,978 $ 28,718
F-16
<PAGE>
1997 1996
Capitalized cash expenditures:
Oil and gas $ 78,353 $ 234,353
Gas pipeline $ 17,945 $ -
Mineral $ 1,695 $ 888
Corporate $ 1,903 $ -
Identifiable assets, net of accumulated
depreciation, depletion and amortization:
Oil and gas $1,751,788 $1,751,009
Gas pipeline 283,747 289,979
Mineral exploration 92,717 91,023
General corporate operations 740,750 1,429,470
Total $2,869,002 $3,561,481
NOTE 12 - OIL AND GAS ACTIVITIES
In May 1995, the Company acquired a 100% leasehold interest in approximately
22,000 acres of undeveloped oil and gas leases in Perkins County, Nebraska for
$25,000 cash and 175,000 shares of the Company's restricted common stock
(valued at $43,750), or approximately $3 per acre. During the year ended
September 30, 1996, a third party drilled several wells on the property under
a farmout agreement. The reserves thus discovered were of marginal value and
the Company abandoned most of the leases and wrote off the remainder in the
year ended September 30, 1996.
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. These properties constitute
the major percentage of the oil and gas reserves of the Company at September
30, 1996. The Company valued the purchase at $2,600,000, based on the
estimated fair value of the property. In addition to the oil and gas
properties, the Company purchased 100% of the stock of COG Transmission
Corporation ("COG"), which had title to the gas pipeline prior to the sale to
the Company. No purchase value was allocated to the purchase of COG by the
Company. 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.
CAPITALIZED COSTS
Capitalized costs associated with oil and gas producing activities are as
follows:
F-17
<PAGE>
September 30,
1997 1996
Proved properties $1,722,857 $1,690,000
Accumulated depreciation, depletion,
and amortization (55,851) (13,684)
Net capitalized costs $1,667,006 $1,676,316
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,
1997 1996
Proved developed acquisitions $ 32,530 $2,255,000
Exploration costs 33,813 -
Total costs incurred $ 66,343 $2,255,000
RESULTS OF OPERATIONS
Results of operations for oil and gas producing activities are as follows:
September 30,
1997 1996
Revenues $ 280,014 $ 88,786
Productions costs (221,466) (75,938)
Depreciation and depletion (77,883) (28,718)
Abandonments - (58,342)
Results of operations
(excluding corporate overhead) $ (19,335) $ (74,212)
UNAUDITED OIL AND GAS RESERVE QUANTITIES
The following unaudited reserve estimates presented as of September 30,
1997 were prepared by Thomas M. Carroll P.E. and by Resource Services
International for September 30, 1996. There are many uncertainties inherent
in estimating proved reserve quantities and in projecting future production
rates and the timing of development expenditures. In addition, reserve
estimates of new discoveries that have little production history are more
imprecise than those of properties with more production history. Accordingly,
these estimates are expected to change as future information becomes
available.
Proved oil and gas reserves are the estimated quantities of crude oil,
condensate, natural gas and natural gas liquids which geological and
engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions.
Proved developed oil and gas reserves are those reserves expected to be
recovered through existing wells with existing equipment and operating
methods.
Unaudited net quantities of proved developed reserves of crude oil
(including condensate) and natural gas (all located within the United States)
are as follows:
F-18
<PAGE>
Changes in Proved Reserves (M BBLS) (MCF)
Estimated Quantity, September 30, 1995 - -
Revisions of previous estimates - -
Acquisitions at April 1, 1996 173 7,524
Sales of reserves - (3,288)
Production - (32)
Estimated quantity, September 30, 1996 173 4,204
Revisions of previous estimates - (2,797)
Acquisitions at September 30, 1997 - 380
Production - (87)
Estimated quantity, September 30, 1997 173 1,700
Proved reserves at year end Developed Undeveloped Total
Oil (M BBLS)
September 30, 1996 - 173 173
September 30, 1997 - 173 173
Gas (MCF)
September 30, 1996 1,138 3,066 4,204
September 30, 1997 1,057 643 1,700
UNAUDITED STANDARDIZED MEASURE
The following table presents a standardized measure of the
discounted future net cash flows attributable to the company's proved oil and
gas reserves. Future cash inflows were computed by applying year-end prices
of oil and gas to the estimated future expenditures (based on current costs)
to be incurred in developing and producing the proved reserves, assuming
continuation of existing economic conditions.
Future income tax expenses were computed by applying statutory
income tax rates to the difference between pre-tax net cash flows relating to
the Company's proved oil and gas reserves and the tax basis of proved oil and
gas reserves and available net operating loss carryforwards. Discounting the
future net cash inflows at 10% is a method to measure the impact of the time
value of money.
The following presents the principal sources of the changes in the
standardized measure of the discounted future net cash flows:
At September 30,
1997 1996
(in thousands)
Future cash inflows
Future production and $ 6,472 $ 10,077
Development costs (2,901) (5,557)
Future income tax expense (494) (962)
Future net cash flows 3,077 3,558
10% annual discount for estimated
timing of cash flows (1,490) (2,073)
Standardized measure of discounted cash flows $ 1,587 $ 1,485
F-19
<PAGE>
The following presents the principal source of the changes in the standardized
measure of discounted future net cash flows:
Years ended September 30,
(in thousands)
1997 1996
Standardized measure of discounted
future net cash flows, beginning of year $ 1,485 $ -
Sales and transfers of oil and gas
produced, net of production costs (44) (67)
Net changes in prices and production
costs and other 343 -
Acquisition of reserves 235 3,196
Changes in future development costs 684 -
Sale and farm-out proved reserves in place - (682)
Revisions of previous quantity estimates (1,732) -
Other 240 -
Net changes in income taxes 227 (962)
Acretion of discount 149 -
102 1,485
Standardized measure of discounted
Future cash flows, end of year $ 1,587 $ 1,485
NOTE 13 - LEASES
The Company has an operating lease for a gas compressor that it uses in its
pipeline operation. Lease costs in fiscal 1997 amounted to $18,876. 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
Subsequent to September 30, 1997, the Company repurchased 1,000,000 shares of
its common stock (See Note 6).
Subsequent to September 30, 1997, the Company reached an agreement to acquire
a 70% interest in three prospecting licenses in Southern Sweden. The terms of
the agreement provide for a $20,000 cash payment and issuance of 50,000 shares
of the Company's restricted common stock.
F-20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MONUMENT RESOURCES, INC.
Date: January 10, 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 January 10, 1998
A.G. Foust Officer, Principal Financial
and Accounting Officer)
and Director
/s/ Stewart A. Jackson Director January 10, 1998
Stewart A. Jackson
________________________ Director
John J. Womack
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheets and statements of operations found on pages F-3 through F-5 of
the Company's Form 10-KSB for the fiscal year ended September 30, 1997, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 43,094
<SECURITIES> 452,018
<RECEIVABLES> 25,394
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 530,085
<PP&E> 2,105,162
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,869,002
<CURRENT-LIABILITIES> 30,987
<BONDS> 0
<COMMON> 3,297,210
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,869,002
<SALES> 0
<TOTAL-REVENUES> 342,074
<CGS> 187,653
<TOTAL-COSTS> 496,629
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (154,555)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (154,555)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> 0
</TABLE>
