SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the transition period from __________ to __________
Commission File No. 33-32685
LEXICO ENERGY EXPLORATION, INC.
___________________________________________________________
(Exact name of small business issuer as specified in its
charter)
Delaware 84-1080261
________ ____________
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
12835 E. Arapahoe Rd, Tower 1, Ste 210
Englewood, Colorado 80112
_____________________________________________________________
(Address of principal executive offices, including zip code)
Issuer's Telephone Number: (303) 792-0416
______________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
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
____ ____
As of September 30, 1998, 14,277,000 shares of common stock
were outstanding.
Transitional Small Business Disclosure Format:
Yes X No
____ ____
<PAGE>
TABLE OF CONTENTS
Form 10-QSB
3rd Quarter Ended September 30, 1998
Lexico Energy Exploration, Inc.
Page
PART I: FINANCIAL INFORMATION
Item 1.
Consolidated Balance Sheet 2
Consolidated Statement Of Operations 3
Consolidated Statement Of Cash Flows 4
Notes To Consolidated Financial Statements 5
Item 2.
Management's Discussion And
Analysis Or Plan Of Operation 6
PART II: OTHER INFORMATION 9
SIGNATURES 10
<PAGE>
PART I. FINANCIAL INFORMATION
<PAGE> 1
ITEM 1. LEXICO ENERGY EXPLORATION, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
(UNAUDITED)
ASSETS
Cash $( 883)
_____________
Total current assets ( 883)
Property & equipment (net) 31,500
Wells & related equipment 1,250,000
Unproved properties 1,120,000
Investment in USAPL 100,000
Prepaid expenses 5,000
Option 10,000
-------------
Total Assets $ 2,515,617
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 74,438
Accts. pay. - related party 55,000
Interest payable 43,109
Related party notes payable 464,250
Deferred tax liability 375,000
____________
Total current liabilities 1,011,797
____________
Total Liabilities 1,011,797
____________
Minority interest 182,516
------------
Stockholders' equity
Common stock: $.001 par
value, 50,000,000 shares
authorized, 14,277,000
shares issued
& outstanding 14,277
Preferred stock: $.01 par
value, 5,000,000 shares
authorized, 0 shares
issued & outstanding -
Additional paid in capital 3,696,219
Accumulated deficit ( 2,389,192)
____________
Stockholders' Equity 1,321,304
____________
Total Liabilities And
Stockholders' Equity $ 2,515,617
============
See Notes to Consolidated Financial Statements
<PAGE> 2
LEXICO ENERGY EXPLORATION, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<S> <C> <C>
Three Months Ended Nine Months Ended
September 30 September 30
1998 1997 1998 1997
____ ____ ____ ____
Sales $ - $ - $ - $ -
Operating expenses 48,391 6,229 148,858 10,408
___________ ________ ___________ ________
Income (loss) from
operations ( 48,391) ( 6,229) ( 148,858) (10,408)
___________ ________ ___________ ________
Other income (expense):
Property write-down (1,544,142) - (1,544,142) -
Minority income 15,000 - 15,000 -
Interest expense ( 1,675) ( 1,675) ( 5,025) ( 5,026)
___________ ________ ___________ ________
(1,530,817) ( 1,675) (1,534,167) ( 5,026)
___________ ________ ___________ ________
Income (loss) before provision
for income taxes (1,579,208) ( 7,904) (1,683,025) (15,434)
Provision for income tax:
Deferred ( 375,000) - ( 375,000) -
___________ ________ ___________ ________
Net income (loss) $(1,954,208) $( 7,904) $(2,058,025) $(15,434)
=========== ======== =========== ========
Net income (loss) per share $ ( .137 ) $( * ) $ ( .168 ) $( * )
=========== ======== =========== ========
Weighted average number of
common shares outstanding 14,277,000 11,277,000 12,277,000 11,277,000
========== ========== ========== ==========
*Less than $.01 per share
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE> 3
LEXICO ENERGY EXPLORATION, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30
1998 1997
____ ____
Cash Flows From Operating Activities:
Net income (loss) $(2,058,025) $(15,434)
Adjustments to reconcile net
income (loss) to net cash
provided by (used for)
operating activities:
Depreciation 483 -
Increase in accounts payable 6,407 7,908
Increase in accts. pay. - rel. party 55,000 -
Increase in deferred tax liability 375,000 -
(Increase) in prepaid expenses ( 6,053) -
Compensatory stock issuance 3,000 -
Property write-down 1,544,142 -
Minority income ( 15,000) -
Increase in interest payable 5,025 5,026
----------- --------
Net cash provided
by (used for)
operating activities ( 90,021) ( 2,500)
----------- --------
Cash Flows From Investing Activities:
(Purchase) of equipment ( 31,000) -
(Capitalized) expenditures ( 294,142) -
(Purchase) of option ( 10,000) -
----------- --------
Net cash provided
by (used for)
investing activities ( 335,142) -
----------- --------
Cash Flows From Financing Activities:
Increase in related party
notes payable 424,250 -
Increase in paid in capital - 2,500
----------- --------
Net cash provided
by (used for)
financing activities 424,250 2,500
___________ ________
Net Increase (Decrease) In Cash ( 913) -
Cash At The Beginning Of The Period 30 -
___________ ________
Cash At The End Of The Period $( 883) $ -
=========== ========
See Notes to Consolidated Financial Statements
<PAGE> 4
LEXICO ENERGY EXPLORATION, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited financial statements have been
prepared in accordance with the instructions to
Form 10-QSB and do not include all of the information and
disclosures required by generally accepted accounting
principles for complete financial statements. All
adjustments which are, in the opinion of management,
necessary for a fair presentation of the results of
operations for the interim periods have been made and are
of a recurring nature unless otherwise disclosed herein.
The results of operations for such interim periods are not
necessarily indicative of operations for a full year.
The accompanying consolidated financial statements include
the accounts of Lexico Energy Exploration, Inc., and its 92% owned
subsidiary Lexico Resources International Corporation (for the
period from September 30, 1998 to December 31, 1998).
<PAGE> 5
LEXICO ENERGY EXPLORATION, INC.
Supplemental Information (Unaudited)
Period Ended September 30, 1998
Capitalized Costs Relating to Oil and Gas
Producing Activities at September 30, 1998
- ------------------------------------------
Unproved oil and gas properties $ 1,120,000
Proved oil and gas properties 2,794,142
Support equipment and facilities -
-----------
3,914,142
Less accumulated depreciation,
depletion, amortization, and
impairment (1,544,142)
-----------
Net capitalized costs $ 2,370,000
===========
Costs Incurred in Oil and Gas Producing
Activities for the Period
Ended September 30, 1998
- ---------------------------------------
Property acquisition costs
Proved $ -
Unproved 900,000
Exploration costs -
Development costs 17,000
Results of Operations for Oil and Gas Producing
Actvities for the Period Ended September 30, 1998
- -------------------------------------------------
Oil and gas sales $ -
Gain on sale of oil and gas properties -
Gain on sale of oil and gas leases -
Production costs -
Exploration expenses -
Depreciation, depletion,
and amortization -
-----------
-
Income tax expense -
-----------
Results of operations for oil and gas
producing activities (excluding
corporate overhead and financing
costs) $ -
===========
Reserve Information
The following estimates of proved and proved developed reserve
quantities and related standardized measure of discounted net cash flow
are estimates only, and do not purport to reflect realizable values or
fair market values of the Company's reserves. The Company emphasizes that
reserve estimates are inherently imprecise and that estimates of new
discoveries are more imprecise than those of producing oil and gas
properties. Accordingly, these estimates are expected to change as future
information becomes available. All of the Company's reserves are located
in the United States.
Proved reserves are estimated reserves of crude oil (including
condensate and natural gas liquids) and natural gas that 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 reserves are those expected to be recovered
through existing wells, equipment, and operating methods.
The standardized measure of discounted future net cash flows is
computed by applying year end prices of oil and gas (with consideration of
price changes only to the extent provided by contractual arrangements)
to the estimated future production of proved oil and gas reserves, less
estimated future expenditures (based on year end costs) to be incurred in
developing and producing the proved reserves, less estimated future income
tax expenses (based on year end statutory tax rates, with consideration of
future tax rates already legislated) to be incurred on pretax net cash flows
less tax basis of the properties and available credit, and assuming
continuation of existing economic conditions. The estimated future net cash
flows are then discounted using a rate of 10 percent a year to reflect
the estimated timing of the future cash flows.
<PAGE> 6
LEXICO ENERGY EXPLORATION, INC.
Supplemental Information (Unaudited) - Continued
Period Ended September 30, 1998
Reserve Information
- -------------------
Oil Gas
(Bbls) (Bcf)
------ ------
Proved developed and undeveloped reserves
Beginning of period 129,300 158.625
Revisions of previous estimates - -
Improved recovery - -
Purchases of minerals in place - -
Extensions and discoveries - -
Production - -
Sales of minerals in place - -
------- -------
End of year 129,300 158.625
======= =======
Proved developed reserves
Beginning of period 129,300 158.625
End of period - -
Standardized Measure of Discounted Future
Net Cash Flows at September 30, 1998
Future cash inflows $ xx
Future production costs ( xx)
Future development costs ( xx)
Future income tax expenses ( xx)
-------
xx
Future net cash flows (10% annual discount for
estimated timing of cash flows) ( xx)
-------
Standardized measures of discounted future net cash
flows relating to proved oil and gas reserves $ xx
=======
The following reconciles the change in the standardized measure of
discounted future net cash flow during the nine months
ended September 30, 1998.
Beginning of period $ xx
Sales of oil and gas produced, net of production costs ( xx)
Net changes in prices and production costs ( xx)
Extensions, discoveries, and improved recovery,
less related costs xx
Development costs incurred during the year which
were previously estimated xx
Net change in estimated future development costs xx
Revisions of previous quantity estimates ( xx)
Net change from purchases and sales of minerals in place ( xx)
Accretion of discount xx
Net change in income taxes ( xx)
Other ( xx)
-------
End of year $ xx
<PAGE> 7
LEXICO ENERGY EXPLORATION, INC.
ITEM 2. Management's Discussion and Analysis or Plan of
Operation
General
Lexico Energy Exploration, Inc. ("Lexico Energy", the "Company")
was incorporated in Delaware in 1987. The Company is a natural gas and
liquids company. Lexico Energy's business is to acquire, explore, and
develop natural resource properties, primarily those relating to
natural gas. The Company intends to develop a diversified portfolio of
projects located in the United States and overseas.
On September 30, 1998, Lexico Energy Exploration, Inc. completed a
merger with Trinon, Inc., a publicly held Nevada corporation. Lexico
Energy exchanged defined assets for Twenty Seven Million, Five Hundred
Thousand (27,500,000) common shares of Trinon, Inc. At the conclusion
of this acquisition, there were approximately Thirty Million (30,000,000)
common shares issued and outstanding in Trinon, Inc., of which
approximately 92% of such shares were owned by Lexico Energy
Exploration, Inc. Trinon, Inc. changed its name to Lexico Resources
International Corporation. Lexico Energy Exploration, Inc. and
Lexico Resources International Corporation are hereinafter referred to
collectively as "Lexico Energy Exploration, Inc.", the "Company" or
"Lexico".
On August 11, 1998, Lexico Energy Exploration, Inc. entered into a
consulting agreement with Alden Funding, LTD of New York City. Under the
agreement Alden Funding will provide business development services,
financing and public relation services. The Company will issue to
Alden Funding One Million (1,000,000) shares of common stock for its
services.
In addition, the Company anticipates having its underwriter
file a 15c2-11 Registration with the SEC the fourth quarter of 1998.
Strategic Developments
New Gas Well and Sites
The Uintah Basin, a major hydrocarbon producing area in Northeast Utah,
is recognized as the second largest onshore hydrocarbon basin in the
contiguous United States and one of the world's largest non-marine
petroleum accumulations.
The Company has acquired 75% of 211.5 BCF of proven
reserves associated with the Conoco 22-1 well from Natural Buttes Gas Corp.
Said reserves are valued at $0.73/mcf, and have been brought forward in
this quarter's financial statements. The acquisition includes the deep
rights from the top of the Mancos formation at 9,700 feet to the Weber
formation at 20,000 feet. Significant finds of gas exist in the subject
ranges according to the drill stem tests.
The Conoco 22-1 well was originally drilled by Conoco and Prudential Life
in 1972 to a depth of 20,000 feet, and recompleted in 1980 by Gillman Hill.
The well was cased to a depth of 14,800 feet to the Frontier zone and completed
there. Engineering reports on the 22-1 project indicate reserves of 32 BCF
in the Frontier, Castlegate and Upper Mancos formations based on 160 acre
spacing. In addition, the well has 436,000 barrels of recoverable condensate.
The Company has received a commitment from Coastal/Engage to purchase up to
4,000 MMBtu/day from this well for a one year term at Inside FERC CIG Rocky
Mountains Index minus $0.20.
Recently, Lexico has acquired 18 more drilling sites in the immediate
area of the Conoco 22-1 well from Natural Buttes Gas Corp.
The probable reserves associated with this transaction are
approximately 394 BCF.
<PAGE> 6
Completion of Current Development Inventory
The Company owns the rights to 50% of Conoco Federal 13-1 gas well ("13-1")
which is also located in the Uintah Basin. The Company anticipates completing
this well after the rollup of a drilling company that it is currently
negotiating. The well can be completed in approximately four weeks working
time, with cash flow accruing to the Company approximately 60 days thereafter.
Australian Subsidiary
The Company owns 50% of United Stratum AUS PTY ("United") which owns drilling
prospects in the South Pacific. The Company also has options to purchase
the remaining shares of United Stratum.
Interwest Vanuatu PTY LTD holds the Petroleum Prospecting License in the
Port Sandwich Basin of the Republic of Vanuatu, S.W. Pacific. United owns
a 37 1/2% interest in the "Net Area Proceeds" of the Interwest concession.
<PAGE> 7
Recent negotiations with the Republic of Vanuatu have assured the rights
of the concession for an additional twelve months while seismic data is
reviewed and evaluated.
The concession includes almost all of Malakula Island and Espiritu Santo
Island, Republic of Vanuatu, S.W. Pacific, as well as offshore areas. The
area is approximately 3,728,000 (131 graticular blocks). The concession is
being marketed to major principals in the industry who have expressed
interest in a position to proceed with a four year program to develop this
project.
Expansion Opportunities
The Company is actively seeking additional opportunities to expand its
asset base and cash flow prospects. It is conducting an ongoing process of
evaluating exploration and development properties, drilling companies,
and associated funding sources for these ventures.
Lexico Energy Exploration, Inc. and its affiliate Natural Buttes Gas Corp.
("NBGC") are currently engaged in negotiations with a Texas based gas and oil
company to potentially merge the producing fields plus future leases of this
company with Lexico. Lexico has offered 14 drilling sites with estimated
reserves of 32 BCF of gas per 160 acre spacing as incentive to the Texas
based company to consummate the merger. The Texas based company is
negotiating a commitment for $35 million which would be brought forward
into the merger.
The engagement of an investment banker and the registration of the Company
with the SEC is also a step towards the future potential of the Company
to raise money and trade publicly.
Results of Operations
The Company had operating losses of $48,391 for the quarter
and $148,858 year to date, resulting primarily from general and
administrative expenses. The Company also had a $1,544,142 property
write-down resulting from drilling and recompletion activities on the
Conoco Federal 22-1 gas well.
Liquidity and Capital Resources
Operating activities of the Company used net cash of $90,021 in the
previous three quarters primarily due to development work on the
Conoco Federal 22-1 gas well, exploration, and administrative overhead.
The Company requires capital to continue with its acquisition and
development of oil and gas properties as well as to complete drilling on
existing properties and to earn an interest in prospects developed by
others under standard industry farmout arrangements. It is anticipated that
funding for expansion activities will be provided by an offering of the
Company's securities (as described above) and through institutional
funding via standard industry arrangements.
<PAGE> 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters To A Vote of Securities Holders - None
Item 5. Other Information - In September, 1998 the Company changed its
accounting year end from September 30 to December 31, to match
that of its newly acquired subsidiary.
Item 6. Exhibits and Reports on Form 8-K - None
<PAGE> 9
SIGNATURES
In accordance with the requirements of the Exchange
Act, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly
authorized.
LEXICO ENERGY EXPLORATION, INC.
By: /s/Lex Dolton
Lex Dolton, President
and Director
Date: January 7, 1999
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE BALANCE SHEET AT 09/30/98 (UNAUDITED)
AND STATEMENT OF OPERATIONS FOR THE QUARTER ENDED 09/30/98
(UNAUDITED). IT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> (883)
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> (883)
<PP&E> 31500
<DEPRECIATION> 0
<TOTAL-ASSETS> 2515617
<CURRENT-LIABILITIES> 1011797
<BONDS> 0
0
0
<COMMON> 14277
<OTHER-SE> 1489543
<TOTAL-LIABILITY-AND-EQUITY> 2515617
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1678000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5025
<INCOME-PRETAX> (1683025)
<INCOME-TAX> 375000
<INCOME-CONTINUING> 0
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<CHANGES> 0
<NET-INCOME> (2058025)
<EPS-PRIMARY> 0
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</TABLE>
