SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended March 31, 2000 Commission File No. 033-24178-A
Mason Hill Holdings, Inc.
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(Name of Small Business Issuer in Its Charter)
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Delaware 65-0109088
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
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110 Wall Street, New York, New York 10005
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(Address of principal executive offices) (Zip Code)
(212) 425-3000
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(Issuer's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Exchange Act: [NONE]
Securities registered pursuant to Section 12(g) of the Exchange Act: [ ] Common
Stock, $.001 Par Value Per Share
Check whether the Issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days: Yes [] No x
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B contained herein, 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.
The Company's revenues for its most recent fiscal year were $12,781,573.
The aggregate market value of the voting stock held by non-affiliates of
the Company was $1,552,136.50 as of August 10, 2000 based on the average bid and
asked prices of such stock as of that date.
There were 15,076,272 shares of Common Stock, $.001 par value outstanding
as of August 10, 2000.
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Forward-Looking Statements
This report contains forward-looking statements. The forward-looking statements
include all statements that are not statements of historical fact. The
forward-looking statements are often identifiable by their use of words such as
"may," "expect," believe," "anticipate," "intend," "could," "estimate," or
"continue," "plans" or the negative or other variations of those or comparable
terms. Our actual results could differ materially from the anticipated results
described in the forward-looking statements. Factors that could affect our
results include, but are not limited to, those discussed in Item 6,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and included elsewhere in this report.
In this Annual Report, "Mason Hill Holdings," "we," "us," and "our" each refers
to Mason Hill Holdings, Inc. and, where appropriate, to our subsidiaries.
PART I
Item 1. DESCRIPTION OF BUSINESS.
OVERVIEW
Mason Hill Holdings through our wholly-owned subsidiary, Mason Hill & Co.,
Inc. ("Mason Hill & Co."), offers a full line of securities brokerage services
to our clients. Mason Hill & Co. is a broker-dealer registered with the
Securities and Exchange Commission and a member of the National Association of
Securities Dealers, Inc. Mason Hill & Co. is currently licensed to conduct
activities as a broker-dealer in forty-five (45) states. Mason Hill & Co. offers
a full line of securities brokerage services to its clients, including the
purchase and sale of listed and over-the-counter securities, fixed income
instruments, annuities and mutual funds. In addition, Mason Hill & Co. engages
in investment banking activities for small to mid-size companies by structuring
their financing and raising capital through private placements, initial public
offerings and secondary offerings. Mason Hill & Co. also provides financial
consulting services to publicly and privately held companies.
Mason Hill & Co. intends to expand its business, primarily through internal
growth and possibly through acquisitions. Mason Hill & Co. does not have any
planned or proposed acquisitions at the present time. Notwithstanding the
foregoing, Mason Hill & Co. is considering entering into a joint venture
arrangement with Millennium Planning, located in Red Bank, New Jersey. Millenium
Planning is engaged in the sale of insurance products and offers financial
planning services.
OUR HISTORY
Mason Hill Holdings is a Delaware corporation originally incorporated under
the name International Sportfest, Inc. in the state of Delaware, on September
11, 1988. The Company was a development stage company with no operations through
January 1994. In January 1994, the Company acquired 100% of the issued and
outstanding common stock of Pride Management Services Plc ("PMS"). PMS was a
holding company of six subsidiaries, in the United Kingdom, engaged in the
leasing of motor vehicles primarily on contract hire to local authorities and
selected corporate customers throughout the United Kingdom. Simultaneously with
the acquisition, the Company changed its name from International Sportfest Inc.
to Pride, Inc. From January 1994 through October 1999, the Company engaged in
the leasing of motor vehicles on contract hire to local authorities and selected
corporate customers throughout the United Kingdom.
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On October 1, 1999, Mason Hill Holdings consummated an acquisition of all
of the issued and outstanding stock of Mason Hill & Co., in exchange for the
issuance of 15,886,618 shares of Common Stock of Mason Hill Holdings. As part of
the completed transaction, Mason Hill Holdings changed its name from Pride, Inc.
to Mason Hill Holdings, Inc., reduced its authorized capital from 500,000,000
shares of common stock to 20,000,000 shares, and accepted the resignation of its
officers and replaced them with the officers of Mason Hill & Co. In addition to
the foregoing, Mason Hill Holdings (i) reorganized its AC Investments and Pride
Management Services Investments, Inc. subsidiaries as wholly-owned subsidiaries
of AC Holdings, Inc., (ii) delivered 350,000 shares of Digital Mafia
Entertainment common stock to AC Holdings as a capital contribution, and (iii)
it spun-off 743,000 shares of Digital Mafia Entertainment common stock that it
owned to its shareholders. AC Holdings is a newly formed minority-owned
subsidiary of Mason Hill Holdings that Mason Hill Holdings intends to spin-off
to its shareholders. Finally, simultaneous with the closing of the agreement,
Mason Hill Holdings' stock underwent a 1 for 2 reverse split.
INDUSTRY
Securities Industry Regulation
The securities industry in the United States is subject to extensive
regulation under both federal and state laws. The principal purpose of the
regulation is to regulate broker-dealers, protect customers and the securities
markets. The SEC is the federal agency responsible for the administration of the
federal securities laws. Mason Hill & Co. is registered with the SEC as a
broker/dealer. Most of the regulation of broker/dealers has been delegated by
the SEC to self-regulatory organizations ("SROs"), principally the NASD, which
is Mason Hill & Co.'s primary regulator. These SROs adopt rules (subject to SEC
approval) that govern the industry. They conduct periodic examinations of all
the operations of all broker/dealers. Pursuant to a membership agreement, the
NASD sets forth activities a member firm is permitted to engage in.
Broker/dealers are also subject to extensive regulation by the states and the
District of Columbia. Mason Hill & Co. also is or will be subject to regulation
by any foreign jurisdiction or subdivision thereof where it seeks to conduct
business.
Broker/dealers are subject to regulations covering all aspects of the
securities business, including sales methods, trade practices among
broker/dealers, use and safekeeping of customers funds and securities, capital
structure, record-keeping and the conduct of officers, directors and employees.
Mason Hill & Co. is required to comply with many complex and evolving laws and
rules, including rules relating to electronic trading.
Additional legislation, changes in rules promulgated by the SEC, the NASD,
other SROs or one or more states, or changes in the enforcement of existing laws
and rules, may directly affect the mode of operation and profitability of
broker/dealers in general. The SEC, the NASD, other SROs and state securities
commissions may conduct administrative proceedings, which can result in censure,
fine, the issuance of cease-and-desist orders or the suspension or expulsion of
a broker/dealer or any of its officers or employees. Mason Hill & Co.'s ability
to comply with all applicable laws and rules is dependent in large part upon the
maintenance of a compliance system reasonably designed to ensure such
compliance. The principal purpose of regulation and discipline of broker/dealers
is the protection of customers and the securities markets, rather than
protection of creditors and shareholders of broker/dealers.
Mason Hill & Co. is a member of Securities Investor Protection Corporation
("SIPC"), which provides, in the event of the liquidation of a broker/dealer,
protection for customers accounts held by such broker/dealer of up to $500,000
for each customer account, subject to a limitation of $100,000 for claims for
cash balances. Additionally, Mason Hill & Co.'s clearing firm, CIBC World
Markets ("CIBC"), which carries customer funds and securities for Mason Hill &
Co., provides additional supplemental insurance for each customer account in the
form of an excess securities bond.
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To the extent that Mason Hill & Co. solicits orders from its customers or
make investment recommendations, it is subject to additional rules and
regulations governing, among other things, the suitability of recommendations to
customers and sales practices.
Net Capital Requirements
As a registered broker/dealer and member of the NASD, Mason Hill & Co. is
subject to net capital rules, which specify minimum net capital requirements for
broker/dealers and are designed to measure the general financial integrity and
liquidity of a broker/dealer. Such rules require that at least a minimum part of
its assets be kept in relatively liquid form. Net capital is essentially defined
as net worth (assets minus liabilities), plus other allowable credits and
qualifying subordinated borrowings less certain mandatory deductions that result
from excluding assets that are not readily convertible into cash and from
valuing certain other assets, such as a firm's positions in securities,
conservatively. Among these deductions are adjustments (called "haircuts") in
the market value of securities to reflect the possibility of a market decline
prior to disposition.
As of March 31, 2000, Mason Hill & Co. was required to maintain minimum
"net capital," in accordance with SEC rules, of approximately $100,000. The
failure of a broker/dealer to maintain its minimum required net capital would
require it to cease executing customer transactions until it came back into
compliance, and could cause it to lose its NASD membership, its registration
with the SEC, or require its liquidation. Further, the decline in a
broker/dealer's net capital below certain "early warning levels," even though
above minimum net capital requirements, could cause material adverse
consequences to the broker/dealer.
Mason Hill Holdings believes that at all times Mason Hill & Co. has been in
compliance in all material respects with the applicable minimum net capital
rules of the SEC and the NASD. As of March 31, 2000, Mason Hill & Co. had net
capital of approximately $1,034,000 or approximately $925,000 in excess of the
minimum amount required.
OUR BUSINESS
Retail and Institutional Sale of Securities
Mason Hill & Co. derives a significant portion of its revenues from
commissions on brokerage transactions resulting from the retail and
institutional sale of equity securities. Mason Hill & Co.'s customers include
both United States and foreign individuals and high net worth individuals.
Mason Hill & Co. earns retail commissions from brokerage transactions in
Nasdaq, as well as securities listed on the NYSE and AMEX. Depending on the
circumstances, Mason Hill & Co. acts as either principal or agent in the
execution of trades in these markets. In executing customer orders for
over-the-counter securities in which it does not make a market, Mason Hill & Co.
will charge a commission and act as agent for the customer in the purchase or
sale of the security. Mason Hill & Co. employs registered representatives who
principally engage in the retail sale of securities.
Trading and Market-Making Activities
Mason Hill & Co. is subject to the "Net Capital Rule," which rule governs
the amount of securities that Mason Hill & Co. may buy, sell or inventory. Mason
Hill & Co. purchases some securities for inventory, in order to "make a market"
in such securities. As a market-maker, Mason Hill & Co. is required to publish
bona fide bid and offer quotations in a quotation system (generally Nasdaq) or
furnish bona fide quotations to other broker-dealers upon request. Mason Hill &
Co., as a market maker, must be ready to buy and sell reasonable quantities of a
security at its quoted prices. Consequently, Mason Hill & Co. has its capital at
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risk when it conducts such market-making activities. The number of securities in
which Mason Hill & Co. is permitted to make a market is limited by Mason Hill &
Co.'s restriction agreement with the NASD and the net capital rule under the
NASD's regulations (the "Net Capital Rule"). The restriction letter from the
National Association of Securities Dealers, Inc. ("NASD"), under the terms of
which Mason Hill & Co. is operating, currently permits Mason Hill & Co. to
engage in "making a market" in corporate securities of up to twenty (20)
issuers. Mason Hill & Co. is currently seeking an amendment to its restriction
letter to allow it to engage in "making a market" in corporate securities of up
to thirty (30) issuers.
In executing customer orders for Nasdaq securities in which it does not
make a market, Mason Hill & Co. charges a commission and acts as a broker in
executing the order with another firm which is a market-maker. Brokerage
commissions are also charged on NYSE and AMEX transactions in accordance with
Mason Hill & Co.'s commission schedule. Mason Hill & Co. executes customer
orders for securities listed on the NYSE, AMEX or on Nasdaq through its clearing
firm, CIBC.
Mason Hill & Co. also engages in securities trading for its own account.
Trading profits or losses depend on the skills of Mason Hill & Co.'s employees
in market-making activities, the amount of capital allocated to securities
positions, the volatility of the securities markets and the general trend of
prices in the securities markets. Trading as a principal requires the commitment
of capital and creates an opportunity for profit as well as the risk of loss due
to market fluctuations. Mason Hill & Co. takes both long and short positions in
securities in which it makes a market. If Mason Hill & Co. is in a short
position with respect to any security, it may be subject to a significant
liability if it is unable to cover the short position. The size of securities
positions on any one day may not be representative of Mason Hill & Co.'s
exposure on any other day, as securities positions vary substantially on the
basis of economic and market conditions, allocations of capital, including the
amount of capital that may be committed to underwritings, and trading volume. In
addition, the aggregate value of inventories that Mason Hill & Co. may carry is
limited by certain reserve requirements imposed by the Net Capital Rule.
Investment and Merchant Banking
Mason Hill & Co.'s activities in this area includes the raising of capital
for corporations, founding and developing new corporations, acting as an
underwriter in public offerings of equity and debt securities for small to
mid-size firms and as placement agent in the private placement of securities.
Mason Hill & Co. has acted in such public underwritings as both the syndicate
manager or syndicate member and intends to continue such activities in the
future. Mason Hill & Co. has in the past and may continue to arrange for or
provide investment candidates with bridge or temporary financing until
consummation of a public offering.
Mason Hill & Co., while engaged in investment banking activities, intends
to provide a full complement of services to its corporate clients. This not only
involves the private and public financing of a corporation, but also
participation in the corporation's development as an active investment banker
and consultant. Mason Hill & Co. may additionally attempt to raise capital for
its corporate clients in connection with mergers, acquisitions, leveraged
buy-outs, divestitures, asset-based financing and corporate reorganizations and
recapitalization. In addition Mason Hill & Co. intends to assist in the
development of new corporations and secure the capital for such new business.
Mason Hill & Co. expects that its investment banking activities will, in part,
concentrate on corporations that are engaged in the environmental,
technological, automotive, healthcare, communications and biotechnical fields,
although it will consider businesses in other, unrelated industries.
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In addition to the foregoing, the NASD has adopted a position of deeming
owners of even a limited, "de minimis" percentage, of a brokerage firm to be
"Associated Persons" of such broker/dealer. In essence, such a position has had
the effect of preventing such persons from participating in private offerings
and bridge transactions of issuers being underwritten by the broker/dealer and
may further restrict such persons ability to participate in initial public
offerings of securities which open at a premium because of "free-riding and
withholding" rules promulgated by the NASD. Investors herein should be aware
that they will in all likelihood be deemed "Associated Persons" of Mason Hill &
Co. and may therefore be precluded from participating in bridge loan, private
placement and initial public offerings in which Mason Hill & Co. is or may
become involved.
Many of the investment and merchant banking activities in which Mason Hill
& Co. may engage will require substantially greater capital than Mason Hill &
Co. has available. There can be no assurance that Mason Hill & Co. will ever be
able to enter into any significant investment and merchant banking activities,
or that it will be successful in such areas. Moreover, the types of investment
and merchant banking transactions in which Mason Hill & Co. may engage is
restricted under the terms of Mason Hill & Co. Restriction Agreement.
Secondary Broker Dealer Operations
Mason Hill Holdings intends to purchase additional broker dealer offices to
attain greater exposure and availability to potential investors. Although it is
unrealistic and cost-ineffective to attempt to blanket the backyards of every
investor, Mason Hill Holdings feels that a combination of its website, and
additional broker dealers will provide further opportunity for growth. While
Mason Hill Holdings has not entered into any agreements to purchase any broker
dealer firm, Mason Hill Holdings intends to pursue such acquisitions in various
locations in the near future.
Internet Trading Site
Mason Hill Holdings is currently analyzing opportunities to commence
operation of an Internet trading web site. The web site would be used to promote
Mason Hill Holdings' business lines as well as maintaining and building Mason
Hill Holdings' client base. The web site would provide real-time online
financial brokerage services and comprehensive securities and market related
information.
Clearing Accounts and Operations
Mason Hill & Co. does not generally hold any funds or securities of its
customers. Mason Hill & Co. utilizes, on a fully disclosed basis, the services
of CIBC as its clearing broker. CIBC, on a fee basis, will process all
securities transactions for Mason Hill & Co., and the accounts of its customers.
Services of CIBC, as clearing broker, includes billing and credit control, and
receipt, custody and delivery of securities, for which each brokerage firm pays
a portion of the commissions it receives from customer transactions. The
clearing agreement requires that Mason Hill & Co. indemnify and hold harmless
the clearing broker from certain liabilities or claims. The services of, as
clearing broker, in effect provides a "back office" for Mason Hill & Co.'s
brokerage activities, freeing Mason Hill & Co. from the need and expense of
creating its own back office capability, and affording its customers the
security of having their securities and cash held by a major Wall Street firm.
As required by the NASD and certain other authorities, Mason Hill & Co.
carries a fidelity bond covering loss or theft of securities, as well as
embezzlement and forgery. The amount of the bond provides total coverage of
$25,000 (with a deductible provision per incident of $5,000). In addition, the
accounts of its customers are insured by SIPC, under certain circumstances, for
up to $100,000 in cash and $500,000 in securities, for each customer.
Furthermore, the clearing broker has excess SIPC coverage pursuant to which
accounts of customers are insured, by SIPC, under certain circumstances, for up
to $2,500,000 of which $100,000 can be in cash. SIPC is funded through
assessments on registered broker-dealers. SIPC assessments are currently
approximately $600 annually. Additional private insurance coverage has been and
may, in the future, be obtained by Mason Hill & Co. for customer accounts that
exceed $2,500,000.
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COMPETITION
Traditional Operations
Mason Hill & Co. competes directly with numerous other broker-dealers, many
of which are large, well-known firms with substantially greater financial
resources than Mason Hill & Co. Many of Mason Hill & Co.'s competitors employ
extensive advertising and actively solicit potential clients. In addition,
competitors furnish investment research publications to clients, the quality and
breadth of which are considered important in the development of new business and
the retention of existing clients. Mason Hill & Co. also competes with a number
of smaller brokerage firms as well as discount brokerage firms that may offer
lower commission rates to their customers than does Mason Hill & Co. In recent
years, institutions such as large commercial banks, insurance companies and
financial services companies, have become a competitive factor by offering to
their customers some of the services presently provided by brokerage firms.
There is no assurance that Mason Hill & Co. will be able to grow or even
continue offering its current services in the future.
Internet Trading Industry
The securities industry has recently experienced a series of technological
advances that have created significant market opportunities online. The ease and
ubiquity of the Internet has driven business traditionally conducted in person
toward electronic commerce. In the past, individual investors could access the
financial markets only through a full-commission broker, who would offer
investment advice and place trades. With the emergence of electronic brokerage
services, investors now have increased access to trading tools and information,
as well as reduced trading costs. Mason Hill Holdings believes that consumers
will continue to move toward the Internet for ways to invest more conveniently
and cost-effectively with less financial service professional interaction. If
correct, this anticipated trend will provide significant opportunity for
expansion in the online trading market segment.
PERSONNEL
Mason Hill & Co. employs approximately forty-one (41) full time registered
representatives, fifteen (15) clerical and operational employees and two (2)
officers. Mason Hill & Co.'s employees include nine (9) general securities
principals, one (1) municipal bond principal, two (2) registered options
principal and one (1) financial operations principal, which are required to
maintain its business.
Item 2. DESCRIPTION OF PROPERTY.
Mason Hill Holdings' executive offices are located at 110 Wall Street, New
York, New York, which consists of approximately 18,650 square feet of leased
office space. The lease is for a five year term expiring February 26, 2006. Rent
expense under the lease is $58,141.37 per month. Mason Hill Holdings believes
its current facilities are satisfactory for the immediate future.
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Item 3. LEGAL PROCEEDINGS.
Many aspects of Mason Hill & Co.'s business involves substantial risks of
liability. Underwriters are subject to substantial potential liability for
material misstatements and omissions in prospectuses and other communications
with respect to public and private underwritten offerings. There has been an
increased incidence of litigation in the securities industry in recent years,
including class action suits that generally seek substantial damages. Any
litigation, from the groundless to the meritorious, could consume significant
resources of Mason Hill & Co. and could affect its ability to carry on normal
business operations. Mason Hill & Co. does not have any insurance with outside
carriers that would cover such risks of liability.
The securities of some of the Offerings in which Mason Hill has
participated as underwriter or syndicate member have declined substantially in
value. As a result of the significant decrease in the value of said securities,
it is possible that the potential for litigation exists, most likely in the form
of arbitration claims set forth against Mason Hill.
The Company's subsidiary, Mason Hill & Co. has been named in an arbitration
commenced by one of its customers before the National Association of Securities
Dealers Inc. which, if decided against Mason Hill & Co., would have a material
adverse affect on the financial condition of Mason Hill & Co. and could cause it
to reduce or terminate operations. The claimants in the action allege that they
established an account with respondent Mason Hill & Co., and that as a result of
the acts and omissions of the respondents, the value of their accounts declined
from approximately $1,231,000 to approximately $348,000. Claimants are seeking
recovery of $1,500,000 for compensatory damages, $500,000 for exemplary/punitive
damages, and $80,000 for capital gains income charges wrongfully incurred,
together with additional awards for the costs and fees of the services and
testimony of an expert, attorney's fees, hearing costs and filing fees, under
various theories of liability including federal securities laws. Mason Hill &
Co. has interposed an answer denying the essential allegations of the statement
of claim and affirmatively alleging, among other things, that claimant's
damages, if any, are the result of claimant's own acts and/or omissions. To
date, no discovery has been conducted with respect to the action. Mason Hill &
Co. intends to vigorously defend this claim.
The Company has recently been notified by DME Interactive Holdings, Inc.
("DME") that DME may seek to hold the Company responsible, as an indemnitor of
DME, for a liability that Pride, Inc. allegedly failed to disclose to DME at the
time that Pride Automotive Group ("PAG") was sold to DME. The liability is based
upon a contractual obligation of PAG, which obligation was guaranteed by Pride,
Inc. As such, DME has stated that they intend to seek to be indemnified by the
Company if an action to recover the liability is commenced against it. The
Company is currently investigating the claim and the potential liability, if
any, to the Company. To date, no action has been commenced against the Company.
The Company is unable to determine what impact, if any, the ultimate resolution
of this matter will have on its financial position or results of operation.
In addition, Mason Hill has been notified that the trading of one of the
public offerings in which it participated is being reviewed by the NASD and
certain state securities agencies.
From time to time the Company has been threatened with, or named as a
defendant in, lawsuits and administrative claims. Compliance, trading and
administrative problems that are reported to the NASD, SEC or state regulators
by dissatisfied customers are investigated by such regulators and, if pursued by
such customers, may rise to the level of arbitration or disciplinary action.
Except as set forth above, the Company's management does not believe any current
investigations or claims are material. There can be no assurance that one or
more future lawsuits, claims or disciplinary actions, if decided adversely to
the Company, would not have a material adverse effect on the Company's business,
financial condition and results of operations. The Company is also subject to
periodic audits and inspections.
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Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.
Not Applicable.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is listed on the OTC Bulletin Board under the
symbol "MHLL." The high and low bid price (price which a market maker is willing
to pay) and ask price (price at which a market maker will sell) quotations for
the Company's common stock, $.002 par value per share, as reported to the
Company's management by the OTC Bulletin Board is listed in the following chart.
These quotations are between dealers, do not include retail mark-ups, markdowns
or other fees and commissions, and may not represent actual transactions.
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Quarter Ended HIGH LOW
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September 30, 1997 .52 .12
December 31, 1997 .52 .16
March 31, 1998 .52 .16
June 30, 1998 .64 .16
September 30, 1998 .64 .16
December 31, 1998 .64 .04
March 31, 1999 .26 .08
June 30, 1999 .26 .08
September 30, 1999 .30 .08
December 31, 1999 1.00 .35
March 31, 2000 .50 .35
June 30, 2000 .55 .26
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In October 1999, the Company underwent a 1 for 2 reverse split. All of the
information provided above has been adjusted to reflect the reverse split.
At August 10, 1999, there were 83 shareholders of record of the Company's
Common Stock. The Company has not paid dividends on its shares of Common Stock
outstanding to date. There are no restrictions that limit the ability of the
Company to pay dividends or are likely to do so in the future.
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Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The statements contained in this prospectus that are not historical are
forward looking statements, including statements regarding our expectations,
intentions, beliefs or strategies regarding the future. Forward looking
statements include statements regarding liquidity, anticipated cash needs and
availability and anticipated expense levels. All forward looking statements
included in this prospectus are based on information available to us on the date
hereof and we assume no obligation to update any such forward looking
statements. It is important to note that our actual results could differ
materially from those in such forward looking statements.
General
Mason Hill Holdings is a Delaware corporation originally incorporated under
the name International Sportfest, Inc. in the state of Delaware, on September
11, 1988. The Company was a development stage company with no operations through
January 1994. In January 1994, the Company acquired 100% of the issued and
outstanding common stock of Pride Management Services Plc ("PMS"). PMS was a
holding company of six subsidiaries, in the United Kingdom, engaged in the
leasing of motor vehicles primarily on contract hire to local authorities and
selected corporate customers throughout the United Kingdom. Simultaneously with
the acquisition, the Company changed its name from International Sportfest Inc.
to Pride, Inc. From January 1994 through October 1999, the Company engaged in
the leasing of motor vehicles on contract hire to local authorities and selected
corporate customers throughout the United Kingdom.
On October 1, 1999, Mason Hill Holdings consummated an acquisition of all
of the issued and outstanding stock of Mason Hill & Co., in exchange for the
issuance of 15,886,618 shares of Common Stock of Mason Hill Holdings. As part of
the completed transaction, Mason Hill Holdings changed its name from Pride, Inc.
to Mason Hill Holdings, Inc., reduced its authorized capital from 500,000,000
shares of common stock to 20,000,000 shares, and accepted the resignation of its
officers and replaced them with the officers of Mason Hill & Co. In addition to
the foregoing, Mason Hill Holdings (i) reorganized its AC Investments and Pride
Management Services Investments, Inc. subsidiaries as wholly-owned subsidiaries
of AC Holdings, Inc., (ii) delivered 350,000 shares of Digital Mafia
Entertainment common stock to AC Holdings as a capital contribution, and (iii)
it spun-off 743,000 shares of Digital Mafia Entertainment common stock that it
owned to its shareholders. AC Holdings is a newly formed minority-owned
subsidiary of Mason Hill Holdings that Mason Hill Holdings intends to spin-off
to its shareholders. Finally, simultaneous with the closing of the agreement,
Mason Hill Holdings' stock underwent a 1 for 2 reverse split.
For financial reporting purposes the transaction was accounted for as a
reverse acquisition. Mason Hill & Co., Inc. was treated as the acquirer and is
the ongoing reporting entity. As a result of the foregoing, the Company has
effectively discontinued its prior operations, and has now been reconstituted as
a parent holding company for Mason Hill & Co., Inc.
Mason Hill Holdings, through its wholly-owned subsidiary, Mason Hill & Co,
offers a full line of securities brokerage services to its clients. Mason Hill &
Co. is a broker-dealer registered with the Securities and Exchange Commission
("SEC") and a member of the National Association of Securities Dealers, Inc.
("NASD"). Mason Hill & Co. is currently licensed to conduct activities as a
broker-dealer in forty-five (45) states. Mason Hill & Co. offers a full line of
securities brokerage services to its clients, including the purchase and sale of
listed and over-the-counter securities, fixed income instruments, annuities and
mutual funds. In addition, Mason Hill & Co. engages in investment banking
activities for small to mid-size companies by structuring their financing and
raising capital through private placements, initial public offerings and
secondary offerings. Mason Hill & Co. also provides financial consulting
services to publicly and privately held companies.
<PAGE>
Results Of Operations
Fiscal Year Ended March 31, 2000 Compared To Fiscal Year Ended March 31, 1999
Total revenues for the fiscal year ended March 31, 2000 increased
$7,628,011 0r 148% to $12,781,573 from $5,153,562 for the fiscal year ended
March 31, 1999. The increase in revenues experienced by the Company resulted
primarily from an increase in commissions and trading profits generated by the
Company's wholly-owned subsidiary, Mason Hill & Co., Inc. The increase in
commissions generated resulted from an increase in the average number of brokers
employed by Mason Hill & Co., as well as from revenues generated by the Mason
Hill & Co.'s new office located in Linwood, New Jersey. Furthermore, Mason Hill
& Co. benefited from the general increase in the stock market and the increased
level of trading activity by customers.
Salaries and related costs for the year ended March 31, 2000 were
$9,822,992, a $6,316,472 or 180% increase over prior year's salaries and related
costs of $3,506,520. The increase in salaries and commissions primarily resulted
from an increase in the number of brokers employed by Mason Hill & Co., which
resulted in increased commission generating activity, as well as from an
increase in the salaries payable to existing personnel.
Commissions and clearing expenses for the year ended March 31, 2000 were
$745,378, a $399,250 or 115% increase over prior year's operating expenses of
$346,128. The increase related to the increased commission revenue generated and
the increased trading volume experienced by Mason Hill & Co.
Communications and data processing expenses for the year ended March 31,
2000 were $532,588, a $211,860 or 66% increase over prior year's operating
expenses of $320,728.
Operating expenses for the year ended March 31, 2000 were $1,747,290, a
$938,980 or 116% increase over prior year's operating expenses of $808,310.
The Company had a net loss for the year ended March 31, 2000 of $579,794 as
compared to a net loss of $304,116 for the same period ended March 31, 1999. The
increase in the net loss primarily resulted from proprietary trading losses
incurred by Mason Hill & Co., which losses were produced by the recent decline
in the overall securities markets.
Liquidity and Capital Resources
Prior to the completion of the acquisition of Mason Hill & Co., Inc.,
Pride, Inc. had limited working capital and its prospects were severely limited.
Upon completion of the acquisition of Mason Hill & Co., Inc., the Company
changed its name to Mason Hill Holdings, Inc. For financial reporting purposes
the transaction was accounted for as a reverse acquisition. Mason Hill & Co.,
Inc. was treated as the acquirer and is the ongoing reporting entity.
Accordingly, the Company's working capital and its capital resources consists of
the financial situation of Mason Hill & Co., Inc.
In December 1999, Mason Hill Holdings completed a private placement of
1,499,500 shares of its common stock from which it received net proceeds of
$578,300.
In March 2000, Mason Hill sold 1,516,500 shares of common stock to an
entity controlled by Christopher Kinsley for an aggregate purchase price of
$409,500.
In August 2000, Mason Hill sold 112,500 Units, each Unit composed of one
share of common stock and two warrants to purchase common stock of the Company,
at a purchase price of $0.40 per Unit, from which it received net proceeds of
approximately $512,700.
<PAGE>
Mason Hill Holdings has subordinated loans outstanding pursuant to which it
has borrowed an aggregate of $230,000. Such loans bear interest at the rate of
10% per annum and are due and payable on August 31, 2002.
Except for the existing subordinated loans totaling $230,000, Mason Hill
Holdings has no other current arrangements in place with respect to financing.
Mason Hill Holdings is currently seeking to raise additional capital through to
provide the necessary capital to fund our expanding operations and to pursue our
business growth strategy. There can be no assurances that additional financing
will be available on acceptable terms, if at all.
Year 2000
Neither the Company nor any of its third party vendors experienced any year
2000 problems.
Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this item is set forth at the end of this report.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
Effective as of April 30, 2000, Mason Hill Holdings, Inc. ("Mason Hill" or
the "Company") dismissed its former independent auditor, Civvals, Chartered
Accountants ("Civvals"), based on their agreement that such action is in the
best interests of both firms. Effective as of that date, the Company has engaged
Demetrius & Company, L.L.C. ("Demetrius & Company") as its new independent
auditor. The decision to end the Company's relationship with Civvals and to
engage Demetrius & Company was unanimously approved by the Company's Board of
Directors.
Over the course of Civvals' engagement, the Company and Civvals had no
disagreements on any matter of accounting principles or practices, financial
statement disclosure, auditing scope or procedure, which disagreement, if not
resolved to the satisfaction of Civvals, would have caused it to make reference
to the subject matter of the disagreement in connection with any report or
opinion it might have issued. Furthermore, neither of Civvals' reports on the
Company's financial statements for the past two years contained an adverse
opinion, disclaimer of opinion, or modification or qualification of opinion.
<PAGE>
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of Mason Hill Holdings are as follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Christopher J. Kinsley 44 President, Treasurer and
Director
Coleen Garay 42 Secretary and Director
Peter Andrew Stearne 40 Director
</TABLE>
Set forth below is a brief background of the executive officers and
directors of Mason Hill Holdings, based on information supplied by them.
Christopher J. Kinsley. Mr. Kinsley is the President, Treasurer and a
Director of Mason Hill Holdings and Mason Hill & Co., Inc. From 1982 to March
1995, Mr. Kinsley was employed with Smith Barney (formerly Shearson Lehman
Bros.). Mr. Kinsley began his employment with Merrill Lynch. From 1984 to 1992,
Mr. Kinsley managed two different Shearson branch offices with between 50 and 90
brokers in each of such offices. Mr. Kinsley currently holds Series 7, 8, 15,
24, 42, 63 and 65 licenses with the NASD. Mr. Kinsley holds a Bachelors of Arts
degree from Adelphi University.
Coleen Garay. Ms. Garay is the Secretary and a Director of Mason Hill
Holdings and Mason Hill & Co., Inc., and has been the Director of Compliance of
Mason Hill & Co., Inc. since September 1995. From September 1990 until September
1995, Ms. Garay was the Administrator of Compliance for Josephthal & Co., Inc.
Peter Andrew Stearne. Mr. Stearne is a Director of Mason Hill Holdings. Mr.
Stearne is a Patent and Trademark Attorney who resides in and practices in
Sydney Australia. Mr. Stearne holds a B.S. with Honors from the University of
Melbourne, majoring in biochemistry and chemistry. Mr. Stearne holds a Doctor of
Philosophy degree from the Walter & Eliza Hall Institute of Medical Research.
The directors of Mason Hill Holdings are elected annually by the
stockholders and hold office until the next annual meeting of stockholders, or
until their successors are elected and qualified. The executive officers are
elected annually by the board of directors, serve at the discretion of the board
of directors and hold office until their successors are elected and qualified.
Vacancies on the board of directors may be filled by the remaining directors.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of Forms 3, 4 and 5, and amendments thereto,
furnished to Mason Hill Holdings during fiscal year 1999, Mason Hill Holdings is
not aware of any director, officer or beneficial owner of more than ten percent
of Mason Hill Holdings' Common Stock that, during fiscal year 1999, failed to
file on a timely basis reports required by Section 16(a) of the Securities
Exchange Act of 1934.
<PAGE>
Item 10. EXECUTIVE COMPENSATION.
The following table sets out annual compensation, long-term compensation and all
other compensation awarded to Mason Hill Holdings' Chief Executive Officer
during its fiscal year ended March 31, 2000.
Director and Executive Compensation:
<TABLE>
<CAPTION>
---------------------------- -------------------- ----------------------------------- ---------------- -------------
Annual Compensation Long Term
Compensation
---------------------------- -------------------- ---------- --------- -------------- ---------------- -------------
Name and Principal Position Year Ended Salary Bonus Other Annual Securities All Other
Compen-sation under Options Compen-sation
Granted
---------------------------- -------------------- ---------- --------- -------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Christopher Kinsley, March 31, 2000 ---- --- $ 819,200 --- ---
President and Chief (1)
Executive Officer
---------------------------- -------------------- ---------- --------- -------------- ---------------- -------------
</TABLE>
(1) Representing commissions paid to Mr. Kinsley by Mason Hill & Co., Mason
Hill Holdings wholly owned subsidiary.
Employment Agreements
Mason Hill Holdings intends to enter into an employment agreement with Mr.
Kinsley, which agreement shall generally provide for a salary in the amount of
$50,000, and a bonus based upon a percentage of Mason Hill & Co.'s net profits
(not to exceed an aggregate of 5%).
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of August 10, 2000, certain information
concerning beneficial ownership of shares of Common Stock with respect to (i)
each person known to Mason Hill Holdings to own 5% or more of the outstanding
shares of Common Stock, (ii) each director of Mason Hill Holdings, (iii) the
executive officers of Mason Hill Holdings, and (iv) all directors and officers
of Mason Hill Holdings as a group:
Outstanding Common Stock Beneficially Owned
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Name and Address of Beneficial Number of Units of Common Percentage of Voting Stock
Owner Stock
-------------------------------- ---------------------------- ------------------------------------------------------
<S> <C> <C> <C>
Christopher Kinsley 5,077,321 (1) 33.7%
Coleen Garay 200,000 1.3%
Peter Andrew Stearne 50,000 *
Walter Durchhalter 3,540,405(2) 23.5%
723 Shad Creek Road
Broad Channel, NY 11694
Officers and Directors as a 5,327,321(1) 35.3%
Group (2 Persons)
----------------------------
</TABLE>
<PAGE>
* Less than One Percent
** Except as noted above, the address for the above identified officers and
directors of Mason Hill Holdings is c/o Mason Hill Holdings, Inc., 110 Wall
Street, New York, New York, 10005.
(1) Includes 1,516,666 shares owned by Mako Holdings, Inc., a company
controlled by Mr. Kinsley.
(2) Does not include (i) 20,250 shares owned by Marion Durchhalter, the
mother of Walter Durchhalter, or (ii) 1,516,666 shares owned by Mako Holdings,
Inc., a company in which Marion Durchhalter is a shareholder, as to which Walter
Durchhalter disclaims beneficial ownership.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In September 1999, Christopher Kinsley, the President of the Company, made
a subordinated loan to the Conmpany in the amount of $130,000. Such loan bears
interest at the rate of 15% per annum and are due and payable on August 31,
2002.
In September 1999, Walter Durchhalter, a former officer and director of the
Company, made a subordinated loan to the Conmpany in the amount of $100,000.
Such loan bears interest at the rate of 15% per annum and are due and payable on
August 31, 2002.
In March 2000, Mason Hill sold 555,555 shares of common stock to
Christopher Kinsley for an aggregate purchase price of $150,000. In addition, in
March 2000, Mason Hill sold 961,111 shares of common stock to an entity
controlled by Christopher Kinsley for an aggregate purchase price of $259,500.
In April 2000, Mason Hill Holdings issued an aggregate of 200,000 shares of
common stock to Coleen Garay in consideration of services rendered.
Item 13. EXHIBITS, LIST, AND REPORTS ON FORM 8-K.
(a) Exhibits are listed on the Index to Exhibits on page 18 of this report.
The Exhibits required by Item 601 of Regulation S-B are listed on such Index in
response to this Item and are incorporated herein by reference.
Financial Statements required by Regulation S-X are listed in response to
this Item and are set forth at the end of this report and are incorporated
herein by reference.
(b) Reports on Form 8-K:
On May 9, 2000, the Company filed a Form 8-K in connection with the
dismissal of its former independent auditor, Civvals, Chartered Accountants, and
the engagement of Demetrius & Company, L.L.C. as its new independent auditor.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MASON HILL HOLDINGS, INC.
By: /s/ CHRISTOPHER J. KINSLEY
Christopher J. Kinsley,
President & Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
<S> <C>
Date: August 15, 2000 /s/ CHRISTOPHER J. KINSLEY
---------------------------------------------------------------------
Christopher J. Kinsley, President, Chief Executive Officer,
Treasurer & Director
Date: August 15, 2000 /s/ COLEEN GARAY
---------------------------------------------------------------------
Coleen Garay, Secretary & Director
Date: August 15, 2000 /s/ PETER ANDREW STEARNE
---------------------------------------------------------------------
Peter Andrew Stearne, Director
</TABLE>
<PAGE>
MASON HILL HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AND ADDITIONAL INFORMATION
MARCH 31, 2000
<PAGE>
MASON HILL HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AND ADDITIONAL INFORMATION
MARCH 31, 2000
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report F-1
Statement of Financial Condition as of March 31, 2000 F-2
Statement of Operations for the Years Ended March 31, 2000 and 1999 F-3
Statement of Changes in Shareholder's Equity for the Years Ended
March 31, 2000 and 1999 F-4
Statement of Cash Flows for the Years Ended March 31, 2000 and 1999 F-5
Notes to Financial Statements F6 - F14
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Mason Hill Holdings, Inc. and Subsidiary.
We have audited the accompanying statement of financial condition of Mason Hill
Holdings, Inc. and Subsidiary as of March 31, 2000, and the related statement of
operations, changes in shareholder's 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. The financial statements for the year ended March
31, 1999 were audited by other auditors whose reports dated May 20, 1999,
expressed an unqualified opinion on those statements.
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 Mason Hill Holdings, Inc. and
Subsidiary at March 31, 2000, and the results of its operations and its cash
flows for the period then ended in conformity with generally accepted accounting
principles.
DEMETRIUS & COMPANY, L.L.C.
Wayne, New Jersey
July 13, 2000
<PAGE>
MASON HILL HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
MARCH 31, 2000
ASSETS
<TABLE>
<CAPTION>
<S> <C>
Cash $ 713,244
Deposits with clearing organization 156,838
Receivable from clearing broker 1,222,562
Securities owned:
Marketable, at market value 628,199
Not readily marketable, at estimated fair value 211,136
Furniture, equipment, and leasehold improvements
net of accumulated depreciation of $174,310 84,952
Security deposits 86,016
Other assets 126,439
--------------------
$ 3,229,386
====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Securities sold, not yet purchased, at market value $ 10,875
Income taxes payable 880
Loans payable, related parties 281,500
Commissions payable 1,081,269
Accounts payable and accrued expenses 273,267
--------------------
1,647,791
Liabilities subordinated to the claims of general creditors 230,000
--------------------
1,877,791
Shareholders' equity
Common stock, $.002 par value, 20,000,000 shares authorized,
12,726,269 shares issued and outstanding 25,452
Additional paid-in capital 14,402,243
Accumulated other comprehensive loss (76,645)
Retained earnings (deficit) (12,999,455)
--------------------
Total Shareholders' Equity 1,351,595
--------------------
$ 3,229,386
====================
</TABLE>
<PAGE>
MASON HILL HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
------------------ --------------------
Revenues:
<S> <C> <C>
Commissions $ 9,556,510 $ 3,464,198
Trading 3,032,909 1,604,045
Other 192,154 85,319
------------------ --------------------
Total Revenues 12,781,573 5,153,562
Expenses:
Salaries and related costs 9,822,992 3,506,520
Commissions and clearing charges 745,378 346,128
Communications and data processing 532,588 320,728
Occupancy 483,983 450,606
Interest 28,256 25,386
Operating expenses 1,747,290 808,310
------------------ --------------------
Total Expenses 13,360,487 5,457,678
------------------ --------------------
Loss before income taxes (578,914) (304,116)
Provision for income taxes 880
------------------ --------------------
Net Loss $ (579,794) $ (304,116)
================== ====================
Basic and diluted loss per common share $ (0.06) $ (0.03)
================== ====================
Weighted average common shares outstanding 9,499,433 8,940,988
================== ====================
</TABLE>
<PAGE>
MASON HILL HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other Retained
No. of Paid-in Comprehensive Earnings
Shares Amount Capital Loss (Deficit) Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance April 1, 1998 ................. 8,940,988 $ 17,882 $ 12,756,813 $ (76,645) $(12,194,961) $ 503,089
Prior period adjustment ............... 79,416 79,416
------------ ------------ ------------ ------------ ------------ ----------
Balance as restated at April 1, 1998 .. 8,940,988 17,882 12,756,813 (76,645) (12,115,545) 582,505
Additional paid-in capital contributed 562,500 562,500
Net loss .............................. (304,116) (304,116)
------------ ------------ ------------ ------------ ------------ ----------
Balance March 31, 1999 ................ 8,940,988 17,882 13,319,313 (76,645) (12,419,661) 840,889
Stock based compensation for services . 769,115 1,538 101,162 102,700
Private placement ..................... 1,499,500 2,999 575,301 578,300
Shares purchased by officer/shareholder 1,516,666 3,033 406,467 409,500
Net loss .............................. (579,794) (579,794)
------------ ------------ ------------ ------------ ------------ ----------
12,726,269 $ 25,452 $ 14,402,243 $ (76,645) $(12,999,455) $1,351,595
============ ============ ============ ============ ============ ==========
</TABLE>
<PAGE>
MASON HILL HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
------------------ ----------------
Cash flows from operating activities:
<S> <C> <C>
Cash received from customers $ 12,136,338 $4,792,173
Cash paid to suppliers and employees (13,212,949) (4,759,747)
Interest paid (28,256) (25,386)
------------------ ----------------
Net Cash Used in Operating Activities (1,104,867) 7,040
Cash flows from investing activities:
Proceeds from sale of investments 117,164
Purchase of long-term investments (103,300)
Purchase of equipment (66,594) (5,357)
------------------ ----------------
Net Cash Used in Investing Activities (52,730) (5,357)
------------------ ----------------
Cash flows from financing activities:
Decrease in subordinated debt (100,000)
Short-term borrowing from related parties 281,500
Proceeds of private placement of shares of common stock 578,300
Sale to officer/shareholder of common stock 409,500
Capital contributed 117,164 562,500
------------------ ----------------
Net Cash Provided by Financing Activities 1,386,464 462,500
------------------ ----------------
Net increase in cash 228,867 464,183
Cash at beginning 484,377 20,194
------------------ ----------------
Cash at End $ 713,244 $ 484,377
================== ================
</TABLE>
<PAGE>
1. ORGANIZATION AND NATURE OF BUSINESS
Mason Hill Holdings, Inc. (the "Company") is a Delaware corporation
originally incorporated under the name International Sportfest, Inc. in
the state of Delaware, on September 11, 1988. The Company was a
development stage company with no operations through January 1994. In
January 1994, the Company acquired 100% of the issued and outstanding
common stock of Pride Management Services Plc ("PMS"). PMS was a holding
company of six subsidiaries, in the United Kingdom, engaged in the
leasing of motor vehicles primarily on contract hire to local authorities
and selected corporate customers throughout the United Kingdom.
Simultaneously with the acquisition, the Company changed its name from
International Sportfest Inc. to Pride, Inc. From January 1994 through
October 1999, the Company engaged in the leasing of motor vehicles on
contract hire to local authorities and selected corporate customers
throughout the United Kingdom.
On October 1 1999, the Company completed the acquisition of all the
issued and outstanding capital of Mason Hill & Co., Inc. ("Mason Hill")
in exchange for the issuance of 15,886,618 shares of Common Stock. In
addition to the foregoing, the Company's then existing subsidiaries were
reorganized and spun-off to its shareholders.
Simultaneously with the acquisition of Mason Hill & Co., Inc.,
the Company changed its name from Pride, Inc. to Mason Hill Holdings,
Inc. ("The Company"). For financial reporting purposes the transaction
was accounted for as a reverse acquisition. Mason Hill was treated as
the acquirer and is the ongoing reporting entity. As a result of the
foregoing, the Company has effectively discontinued its prior
operations, and has now been reconstituted as a parent holding company
for Mason Hill.
The Company through its wholly-owned subsidiary, Mason Hill, offers a
full line of securities brokerage services to its clients. Mason Hill is
a broker-dealer registered with the Securities and Exchange Commission
("SEC") and a member of the National Association of Securities Dealers,
Inc. ("NASD"). Mason Hill is currently licensed to conduct activities as
a broker-dealer in forty-five (45) states. Mason Hill offers a full line
of securities brokerage services to its clients, including the purchase
and sale of listed and over-the-counter securities, fixed income
instruments, annuities and mutual funds. In addition, Mason Hill engages
in investment banking activities for small to mid-size companies by
structuring their financing and raising capital through private
placements, initial public offerings and secondary offerings. Mason Hill
also provides financial consulting services to publicly and privately
held companies.
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary. All material
intercompany balances and transactions are eliminated in consolidation.
Securities Transactions - Proprietary securities transactions in
regular-way trades are recorded on the trade date, as if they had settled.
Customers' securities are reported on a settlement date basis with related
commission income and expenses reported on a trade date basis.
Investment Banking - Investment banking revenues include gains, losses, and
fees, net of syndicate expenses, arising from securities offerings in which
the Company acts as an underwriter or agent. Investment banking revenues
also include fees earned from providing merger-and-acquisition and
financial restructuring advisory services. Investment banking management
fees are recorded on offering date, sales concessions on settlement date,
and underwriting fees at the time the underwriting is completed and the
income is reasonably determinable.
Commissions - Commissions and related clearing expenses are recorded on a
trade-date basis as securities transactions occur.
Translation of Foreign Currencies - Assets and liabilities denominated in
foreign currencies are translated at year end rates of exchange, while the
income statement accounts are translated at average rates of exchange for
the year. Gains or losses resulting from foreign currency transactions are
included in net income.
Income Taxes - As of October 1, 1999 (date of merger), the Company and its
subsidiary are included in the consolidated federal income tax return filed
by the Parent. Federal income taxes are calculated as if the companies
filed on a separate return basis, and the amount of current tax or benefit
calculated is either remitted to or received from the Parent. The amount of
current and deferred taxes payable or refundable is recognized as of the
date of the financial statement, utilizing currently enacted tax laws and
rates. Deferred tax expenses or benefits are recognized in the financial
statements for the changes in deferred tax liabilities or assets between
years.
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stock Based Compensation - Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation ("FAS 123") encourages,
but does not require, companies to record compensation cost for
stock-based employee compensation plans at fair value. The Company has
elected to account for stock-based compensation using the fair value
method prescribed in Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees.
Furniture, Equipment and Leasehold Improvements - Furniture, equipment
and leasehold improvements are recorded at cost. Depreciation is provided
by straight line and accelerated methods over the estimated useful lives
of the assets, principally 5 years.
Fair Value of Financial Instruments - The carrying amounts of the
Company's financial instruments which include cash equivalents, accounts
payable, accrued expenses approximate their fair values at March 31,
2000.
Comprehensive Income - The Company adopted SFAS No. 130, Reporting
Comprehensive Income (SFAS 130), effective January 1, 1998. SFAS 130
establishes standards for reporting and display of comprehensive income
and its components in a full set of general-purpose financial statements.
Comprehensive income is the change in equity of a business enterprise
during a period from certain transactions and the events and
circumstances from non-owner sources. For the periods presented in the
accompanying combined statements of operations, comprehensive income
equals the amounts of net income reported on the accompanying combined
statements of operations.
Historical Net Income Per Share - The Company computes net income per
common share in accordance with SFAS No. 128, "Earnings per Share" and
SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under the provisions of
SFAS No. 128 and SAB 98, basic and diluted net loss per common share is
computed by dividing net income available to common shareholders for the
period by the weighted average number of shares of common stock
outstanding during the period. Also, the shares outstanding for all
periods shown have been adjusted to reflect the 1 for 2 reverse split as
of October 1, 1999.
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Segment Information - In June 1997, Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No. 131,
"Disclosure About Segments of an Enterprise and Related Information"
("Statement 131"), effective for financial statements for fiscal years
beginning after December 15, 1997. Statement 131 establishes standards
for the reporting by public business enterprises of financial and
descriptive information about reportable operating segments in annual
financial statements and interim financial reports issued by
shareholders.
The Company primarily conducts activities as a broker-dealer in
securities and investment banking activities. Management uses one
measurement of profitability and does not separate or segment its
business for internal reporting.
Statement of Cash Flows - For purposes of the Statement of Cash Flows,
the Company has defined cash equivalents as highly liquid investments,
with original maturities of less than ninety days, that are not held for
sale in the ordinary course of business.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles required management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
3. CONCENTRATIONS OF CREDIT RISK
The Company is engaged in various trading and brokerage activities in
which counterparties primarily include broker-dealers, banks, and other
financial institutions. In the event counterparties do not fulfill their
obligations, the Company may be exposed to risk. The risk of default
depends on the creditworthiness of the counterparty or issuer of the
instrument. It is the Company's policy to review, as necessary, the
credit standing of each counterparty.
<PAGE>
4. FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements, are composed of the
following:
<TABLE>
<CAPTION>
<S> <C>
Furniture and fixtures $ 40,115
Equipment 108,190
Leasehold improvements 110,957
--------
259,262
Less: accumulated depreciation 174,310
--------
$ 84,952
========
</TABLE>
5. COMMITMENTS AND CONTINGENT LIABILITIES
The Company has obligations under operating leases with initial
noncancelable terms in excess of one year. Aggregate annual rentals for
real estate at March 31, 2000, are approximately as listed below:
2000 $287,947
2001 917
------------
$288,864
============
Rent expense for year ended March 31, 2000 aggregated $424,127. Certain
leases contain renewal options and escalation clauses.
6. SUBORDINATE BORROWINGS
As of March 31, 2000 $230,000 of debt was under subordination agreements.
The notes bear interest at the rate of 15% per annum and are due August
30, 2002. The subordinated borrowings are available in computing net
capital under the SEC's uniform net capital rule. To the extent such
borrowings are required for the Company's continued compliance with
minimum net capital requirements, they may not be repaid.
<PAGE>
7. NET CAPITAL REQUIREMENTS
The Company's subsidiary is subject to the Securities and Exchange
Commission Uniform Net Capital Rule (SEC rule 15c3-1), which requires the
maintenance of minimum net capital and requires that the ratio of
aggregate indebtedness to net capital both as defined, shall not exceed
15 to 1 (and the rule of the "applicable exchange also provides that
equity capital may not be withdrawn or cash dividends paid if the
resulting net capital ratio would exceed 10 to 1). At March 31, 2000, the
Subsidiary had net capital of $1,034,043, which was $924,915 in excess of
its required net capital of $109,128. The Company's net capital ratio was
1.58 to 1.
8. RELATED PARTY TRANSACTIONS
As of March 31, 2000, the Company was indebted to an officer and
shareholder and relative of a shareholder in the amount of $281,500. The
loans bear no interest and were repaid subsequently. Also, the
subordinated debt of $230,000 at March 31, 2000 was due to an officer, a
former officer and shareholders. (See Note 6).
9. MAJOR CONCENTRATIONS
At March 31, 2000, the Company had funds on deposit in a bank of $737,295
in excess of the insurance limit. Also at that date a clearing broker
accounted for 100% of commissions receivable.
10. INCOME TAXES
The Company is included in the consolidated federal income tax return
filed by its Parent. Federal income taxes are calculated as if the
Company filed a separate federal income tax return. The Company files its
own state and local tax returns.
Because of the Company's losses no income taxes have been accrued except
for the minimum amount of state and local. The Company has a deferred tax
asset of $294,000 at March 31, 2000, for which a 100% valuation allowance
is netted. The deferred tax asset results principally from net operating
loss carryovers. Net operating losses aggregate approximately $1,149,000,
expiring as follows:
2018 $481,000
2019 349,000
2020 319,000
----------
$1,149,000
==========
<PAGE>
11. CASH FLOWS
Reconciliation of Net Loss to Net Cash Used in Operating Activities:
--------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
-------------- ---------------
<S> <C> <C>
Net Loss ($579,794) ($304,116)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 30,496 30,782
Stock based compensation for services102,700
Prior period adjustment (Increase) decrease:
Receivable from clearing organization(596,363) (361,389)
Trading securities (458,784) 88,852
Prepaid expenses (30,368) (100,510)
Security deposits (6,600)
Increase (decrease):
Accounts payable and accrued expenses 422,971 670,958
Securities sold 10,875 (17,537)
----------- -----------
Net Cash Used in Operating Activities ($1,104,867) $ 7,040
=========== ===========
</TABLE>
During the year ended March 31, 2000 the Company recorded expenses for
the following non-cash transactions:
<TABLE>
<CAPTION>
<S> <C>
40,500 shares of common stock issued for
commission expense to officer/shareholder $ 6,480
94,285 shares of common stock issued for
legal services 13,757
634,330 shares of common stock issued for
consulting services 82,463
----------
$102,700
==========
</TABLE>
12. EMPLOYEE BENEFIT PLANS
The Company has a 401(k) Plan in which all eligible employees may
participate. To be eligible the employee must be at least 21 years old,
employed at least one year and work at least 1,000 hours a year. The
Company does not make any contribution to the plan.
13. PRIOR PERIOD ADJUSTMENT
The beginning retained earnings as April 1, 1998, have increased by
$79,416 as a result of a security deposit charged off to expense in prior
year.
The effect of the restatement is as follows:
<TABLE>
<CAPTION>
As Previously As
For the Year Ended March 31, 1999 Reported Restated
Balance Sheet:
<S> <C> <C>
Security deposits $ 79,416
Accrued expenses and other liabilities$ 312,672 264,888
Retained earnings (deficit) (12,194,961) (12,115,545)
Statement of Operations
Net income (loss) (390,899) (304,116)
</TABLE>
Additionally, the shareholders' equity as of March 31, 1998 would be
increased by $79,416 and the accumulated deficit decreased by the same
amount.
<PAGE>
14. SUBSEQUENT EVENT
On April 10, 2000, the Company issued 1,050,000 shares of the Company's common
stock to certain employees for compensation. Compensation expense for the year
ended March 31, 2001, will be charged for the fair value of the stock issued in
the amount of $136,500.
15. LEGAL MATTERS
The Company is currently involved in a couple of legal matters that arose in the
normal course of business. Claimants are seeking recovery of damages aggregating
approximately $1,650,000 plus exemplary/punitive damages and other charges
aggregating approximately $580,000. The Company has denied all charges. Based on
information currently available, management does not believe that the ultimate
resolution of these matters will have a material adverse effect on the Company's
financial condition, results of operations or cash flows.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
<S> <C>
3.1 Amended and Restated Certificate of Incorporation
3.2 By-Laws*
3.3 Form of Common Stock Certificate
10.1 Stock Purchase Agreement, dated as of July 30, 1999, by and among Pride, Inc., Mason Hill & Co., Inc.
and the shareholders of Mason Hill & Co., Inc.**
21.1 List of Subsidiaries of Mason Hill Holdings, Inc.
23.1 Consent of Lilling & Company, LLP
27.1 Financial Data Schedule
</TABLE>
* The exhibits designated with an asterisk have previously been filed with the
Commission in connection with the Report on Form 8-K, dated January 13, 1994
filed by Pride, Inc, the Registration Statement on Form SB-2, dated January 12,
1996 (File No. 33-296-NY) filed by Pride Automotive Group, Inc. (PAG) and the
Report on Form 8-K, dated September 5, 1996, filed by PAG, and are incorporated
by reference herein.
** Incorporated by reference to the Company's Definitive Information Statement
on Form 14-C, filed with the SEC on September 13, 1999).
