SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No. 33-55254-22
LEXICO RESOURCES INTERNATIONAL CORPORATION
(formerly Trinon, Inc.)
_________________________________________________________________
(Exact name of small business issuer as specified in its charter)
Nevada 87-0438633
_______________________________ __________________
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
12835 E. Arapahoe Rd, Tower 2, Ste 300
Englewood, Colorado 80112
___________________________________________________________
(Address of principal executive offices, including zip code)
Issuer's Telephone Number: (303) 792-0416
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: None
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes No X
___ ___
As of December 31, 1998, 30,020,523 shares of common stock were outstanding,
and the aggregate market value of the common stock of the Registrant held by
nonaffiliates was approximately $42,686,341.
Documents incorporated by reference: none
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State Issuer's revenues for its most recent fiscal year: $-0-
This Form 10-KSB consists of 30 pages. The Exhibit Index begins on page 12.
<PAGE>
TABLE OF CONTENTS
Form 10-KSB Annual Report - 1998
Lexico Resources International Corporation
(formerly Trinon, Inc.)
Page
Facing Page
Index
PART I
Item 1. Business 1
Item 2. Properties 1
Item 3. Legal Proceedings 1
Item 4. Submission of Matters to a Vote of Security Holders 1
PART II
Item 5. Market For Registrant's Common Equity
And Related Shareholder Matters 2
Item 6. Management's Discussion And Analysis Or Plan Of
Operations 2
Item 7. Financial Statements 8
Item 8. Disagreements On Accounting And Financial Disclosures 8
PART III
Item 9. Directors And Executive Officers Of The Registrant 9
Item 10. Executive Compensation 10
Item 11. Security Ownership Of Certain Beneficial Owners And
Management 10
Item 12. Certain Relationships And Related Transactions 11
PART IV
Item 13. Exhibits, Financial Statement Schedules, And
Reports On Form 8-K 12
SIGNATURES 13
<PAGE>
PART I
Item 1. Business
Lexico Resources International Corporation (formerly Trinon, Inc.),
("Lexico", the "Company", the "Registrant") was organized under the laws
of Utah on April 16, 1986 and subsequently reorganized under the laws of
Nevada on December 30, 1993. In September, 1998, the Company acquired the
net assets of Lexico Energy Exploration, Inc., in exchange for 97% of the
the Company's outstanding common stock. Lexico Energy Exploration, Inc.
and Lexico Resources International Corporation remain as separate legal
entities and operate as separate entities. The Company is in the business
of acquisition, exploration, and development of natural gas and, to a
lesser extent, oil properties. On September 30, 1998 the corporate name
was changed from Trinon, Inc. to Lexico Resources International Corporation.
The Company's officers are currently seeking financing for completion of a
deep gas well called the Conoco 13-1 in Uintah County, Utah, in which the
Company has a 37.5% working interest. The Conoco 13-1 was drilled to over 15,000
feet and cased in the mid 1970's, and the Company feels that gas markets
in the area are now strong enough to warrant recompletion of the well.
An engineering report prepared for the Company in 1987, and updated in
January of 1997 concluded that conventional completion of the well could
result in recovery of approximately 2.3 BCF (billion cubic feet) of gas,
and that horizontal completion could result in cumulative gas recovery of
in excess of 11 BCF.
Item 2. Properties
The Company maintains its offices in Englewood, Colorado. The Company's
oil and gas properties consist of deep operating rights to 4,000 acres in
the Natural Buttes field of the Uintah Basin in Utah, and operating rights
to two shut-in wells on 640 acres also in the Uintah Basin, the Conoco
Federal 22-1 and 13-1.
Item 3. Legal Proceedings
The Company was involved in no legal proceedings during the fiscal year
ended December 31, 1998.
Item 4. Submission of Matters to a Vote of Security Holders
In September, 1998, the shareholders voted to acquire the outstanding
net assets of Lexico Energy Exploration, Inc., in exchange for 97% of the
Company's outstanding common shares.
In September, 1998, Lex Dolton, Ed Baldwin and Clarey Zingler were
elected to the Board of Directors.
1
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
(a) Principal Market or Markets: The Company's common stock trades
under the symbol LXXI on the OTC Bulletin Board System.
High and low bids for the Company's common stock for the previous eight
quarters are shown below.
BID
Class Quarter Ended High Low
Common Mar. 31, 1997 No Bid No Bid
Common June 30, 1997 No Bid No Bid
Common Sept. 30, 1997 No Bid No Bid
Common Dec. 31, 1997 $ 5.62 $ 0.00
Common Mar. 31, 1998 No Bid No Bid
Common June 30, 1998 No Bid No Bid
Common Sept. 30, 1998 No Bid No Bid
Common Dec. 31, 1998 $12.25 $12.12
(b) Common Stock: On December 31, 1998 there were 30,020,523
shares of common stock issued and outstanding, which were held by 84
shareholders of record excluding individuals holding securities in street name.
The Company has never paid cash dividends on its common stock and currently
intends to continue its policy of retaining all of its earnings for use in its
business.
(c) Preferred Stock: The Company at December 31, 1998 had no preferred
shares issued or outstanding.
Item 6. Management's Discussion and Analysis or Plan of Operations
The following discussion should be read in conjunction with the Financial
Statements and notes thereto included herein.
The Company
- -----------
Lexico Resources International Corporation is in the business of acquisition,
exploration, and development of natural gas and, to a lesser extent, oil
properties. The Company is constantly reviewing investment opportunities
and intends to develop a geographically diversified portfolio of projects,
each of which exhibits a significantly positive net present value.
2
<PAGE>
The Company owns a majority interest in the deep operating rights to 4,000
acres in the Natural Buttes field of the Uintah Basin, Utah. Lexico also
owns the right to two shut-in wells on 640 acres in the Uintah Basin,
Conoco Federal 22-1 and 13-1. The Uintah Basin is the second largest onshore
hydrocarbon producing basin in the contiguous United States and is one of
the world's largest nonmarine petroleum accumulations. Gas wells have been
in production across the entire basin since the early 1920's, but only
recently has technology been perfected that allows the vast deep reserves
to be tapped.
The project will be developed over the course of six years via the
systematic drilling of deep natural gas wells. Two wells will be developed
in 1999, with five wells each in 2000-2002 and six wells in 2003, for a
total of twenty three over the plan horizon.
Comparison of Operating Results
- -------------------------------
Effective September 30, 1998 the Company entered into an asset purchase
agreement with Lexico Energy Exploration, Inc., in which the Company issued
common stock representing 97% of its issued and outstanding shares in
exchange for the net assets of Lexico Energy Exploration, Inc. Such assets
consist of two natural gas wells and deep operating rights on 4,000 acres in
the Natural Buttes field of the Uintah Basin in northeastern Utah. Also as
of September 30, 1998, the Company's principal business changed, an entirely
new Board of Directors was appointed, and new officers and directors
assumed management of the Company. Due to these substantial changes in the
Company's business and management structure as of September 30, 1998,
corporate activities occurring prior to that time are unrelated to activities
occurring after that time and to future corporate activities. As a
consequence, a comparison of corporate financial activity of the Company
prior to and subsequent to September 30, 1998 is not meaningful.
The Company generated no revenue during 1998. The period subsequent to
September 30, 1998 was primarily devoted to preparatory activities related
to development of the Company's natural resources assets, negotiations
related to the acquisition of additional natural resources assets, capital
raising activities and organizational activities. The Company anticipates
that during the course of 1999, revenue will begin to be received from its
natural gas development activities.
The Company incurred general and administrative expense of $246,417 in 1998.
Of this amount, $43,037 was expended prior to September 30, 1998 and
$203,380 was expended subsequent to September 30, 1998. The expenses of
$203,380 were directly related to the Company's present business purposes,
and consisted of consulting expenses related to operational and administrative
needs incurred in the ordinary course of the Company's business and it is
expected that they will continue in the future. The Company's current
estimated monthly operating costs are $30,000. Also, as the Company commences
development of its natural resources assets, Management anticipates that
general and administrative expenses will increase.
3
<PAGE>
During the period subsequent to September 30, 1998, the Company incurred
interest expense of $38,880 in connection with loans to the Company from
related parties. Management anticipates that a substantial portion of
working capital and operational capital may be funded through the issuance
of additional debt. Thus, the Company anticipates a continuing need to make
interest payments for the foreseeable future.
The Company incurred depreciation expense for the period subsequent to
September 30, 1998 of $2,507, which was related to office equipment.
Management expects to continue to incur depreciation expenses for
equipment owned by the Company. In addition, at such time as revenues begin
to be received from oil and gas exploration and development activities,
the Company will incur depletion expense. The amount of such expense is not
determinable at this time.
Liquidity & Capital Resources
- -----------------------------
As of December 31, 1998 the Company had a working capital deficit of $869,565.
This deficit was funded by accounts payable of $84,514 and demand notes
payable to certain officers and directors in the amount of $786,940. The
Company has been provided with working capital by loans from certain officers
and directors, from time to time, as needed. There is no assurance that in the
future such officers and directors will be able or willing to provide
additional debt funding to the Company.
The Company is actively seeking additional sources of capital to be used
for both energy exploration and operations. Management has set a capital
acquisition target of $5,000,000, which would provide sufficient operational
capital to develop the Company's first two natural gas wells and provide
for general and administrative expenses for a period of twenty four months.
Management believes that this amount of time will be adequate to bring
online producing natural gas wells which would generate sufficient revenue
to cover operating expenses on an ongoing basis.
The Company is pursuing the use of various potential instruments with which
to raise capital, including the sale of equity, the sale of preferred stock,
and the issuance of debt. The Company's ability to raise capital will depend
upon, among other things, investor perception of the Company's financial
prospects, the prevailing share price of the Company's stock on the OTCBB
market, the prevailing and expected price for oil and natural gas, the
success of prior projects, the availability of and return on competing
investment opportunities, and various macroeconomic factors.
4
<PAGE>
The Company continually reviews exploration, development, and acquisition
opportunities and expects to participate in numerous such projects in 1999
and beyond. The Company currently owns exploration and development rights
to two natural gas wells and the deep operating rights to 4,000 acres in
Uintah County, Utah. It is anticipated that $75 million will be required to
fully develop these properties, of which a substantial portion is expected
to be provided by cashflow generated from an initial set of wells. Thus,
Management believes that the Company's development activities will be limited
by the availability of capital with which to develop these resources. There
is no assurance as to the certainty, timing, or final amount that will be
available to the Company for oil and gas exploration activities.
Often in the oil and gas exploration business, a company that owns
development rights but lacks capital for drilling and completion will enter
into a joint venture with a company who provides the required development
capital in exchange for a share of the revenues arising from that project.
These arrangements vary in nature. Should the Company not be able to raise
the required capital to develop its properties by itself, it will likely
seek such a joint venture arrangement. If it does so, revenues available
to the Company from production of its oil and gas rights will be diluted.
On December 11, 1998 the Company entered into a definitive agreement with
Dark Horse Drilling & Completions, LLC to purchase a 40% working interest
in that company's Danielson Well D-101 in Uintah County, Wyoming. The
purchase price was $250,000. Following completion of due diligence, the
Company paid the purchase price in April, 1999. In order to complete the
well and prepare it for production, Dark Horse Drilling must
secure additional capital in the amount of $500,000.
As part of the September 30, 1998 transaction described above, the Company
received 50% of the outstanding shares of United Stratum Aus. Pty. ("USAP")
from Lexico Energy Exploration, Inc. USAP is an Australian company which
has interests in oil and gas exploration and development ventures in the
South Pacific. The Company does not reflect ownership of USAP on its
audited financial statements because USAP does not prepare audited financial
statements. Without audited financial statements, there is no reasonable
basis for reporting the value of the Company's holdings.
Management believes that the oil and gas properties in which USAP has an
interest will require substantial amounts of capital for development. The
Company exercises no management or voting control over USAP and there is no
assurance that USAP or its affiliates will secure sufficient funds to
complete the development programs. Therefore, there is no assurance that the
Company will ever realize value from its holdings in USAP.
5
<PAGE>
Year 2000 Compliance Issues
- ---------------------------
Computer software used by the Company consists primarily of
(1) off-the-shelf commercial accounting software and (2) analytical
geophysical software. The vendor of the accounting software has stated
that its product is Year 2000 compliant. The geophysical software does
not employ dates in its algorithms. Thus, the Company does not believe
that it has any risk exposure to Year 2000 computer issues.
Certain Risks
- -------------
Forward Looking Statements. This Report on Form 10-KSB contains forward
looking statements within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward
looking statements include statements regarding: future oil and gas
production and prices, future exploration and development spending, future
drilling and operating plans and expected results, reserve and production
potential of the Company's properties and prospects, "Year 2000" compliance
issues and the Company's strategy. Actual events or results could differ
materially from those discussed in the forward looking statements as a
result of various factors including, without limitation, the factors set
forth below and elsewhere in this 10-KSB.
Dependence on Additional Capital. Successful development of the Company's
oil and natural gas reserves will require a substantial amount of additional
funding relative to the Company's current capitalization. There is no
assurance that such development capital will be available to the Company
as it is required. Further, due to the lack of operating cash flow in
amounts sufficient to fund Company operations, there is no assurance that
the Company will be able to continue its efforts to operate and to develop
its oil and gas reserves.
Exploration and Development Risks. The business of exploring for and, to a
lesser extent, of acquiring and developing oil and gas properties is an
inherently speculative activity that involves a high degree of business
and financial risk. Although available geological and geophysical
information can provide information with respect to a potential oil or gas
property, it is impossible to determine accurately the ultimate production
potential, if any, of a particular property or well.
Dependence on a Limited Number of Wells. For the foreseeable future,
substantially all of the Company's future revenues and cash flow will be
derived from a limited number of wells. There will be continuing risk
that a significant curtailment or loss of production from these wells for a
prolonged period before the Company could replace the reserves through
new discoveries or acquisitions would have a material adverse effect on
the Company's operating results.
Volatility of Oil and Gas Prices. The Company's future revenues,
profitability and rate of growth are substantially dependent upon prevailing
market prices for natural gas and oil, which can be extremely volatile
and in recent years have been depressed by excess domestic and imported
supplies.
6
<PAGE>
Uncertainty of Estimates of Proved Reserves and Future Net Revenues.
There are numerous uncertainties inherent in estimating quantities of proved
reserves and in projecting future rates of production and timing of
development expenditures, including many factors beyond the control of
the producer. Estimating quantities of proved reserves is inherently
imprecise. Such estimates are based upon certain assumptions about future
production levels, future natural gas and crude oil prices and future
operating costs made using currently available geologic engineering and
economic data, some or all of which may prove incorrect over time.
Operating and Weather Hazards. The costs and timing of drilling, completing
and operating wells is often uncertain. Drilling operations may be
curtailed, delayed or canceled as a result of a variety of factors,
including regulatory and environmental constraints, unexpected drilling
conditions, equipment failures, accidents, adverse weather conditions,
encountering unexpected formations or pressures in drilling and completion
operations, encountering corrosive or hazardous substances, mechanical
failure of equipment, blowouts, cratering and fires. These conditions could
result in damage or injury to, or destruction of, formations, producing
facilities or other property or could result in personal injuries,
loss of life or pollution of the environment.
Additional factors. Additional factors that could cause actual events to
vary from those discussed above and elsewhere in this report include,
among others: loss of key company personnel; adverse change in governmental
regulation; regulatory and/or environmental constraints; inability to
obtain critical supplies and equipment, personnel and consultants; and
inability to access capital to pursue the Company's plans.
Glossary
- --------
When the following terms are used in written material related to the Company,
they have the following meanings:
Bbl - One stock barrel or 42 U.S. gallons liquid volume, usually used in
reference to crude oil or other liquid hydrocarbons.
Bcf - One billion cubic feet; expressed, where gas sales contracts are in
effect, in terms of contractual temperature and pressure basis and, where
contracts are nonexistent, at 60 degrees Fahrenheit at 14.65 pounds per
square inch absolute.
Prospect - An area in which a party owns or intends to acquire one or more
oil and gas interests which is geographically defined on the basis of
geological data and which is reasonably anticipated to contain at least
one reservoir of oil, gas, or other hydrocarbons.
Proved Developed Reserves - Proved Reserves which can be expected to be
recovered through existing wells with existing equipment and operating
methods.
Proved Reserves - The estimated quantities of crude oil, natural gas, and
other hydrocarbons which, based upon geological and engineering data, are
expected to be produced from known oil and gas reserves under existing
economic and operating conditions, and the estimated present value thereof
based upon the prices and costs on the date that the estimate is made and
any price changes provided for by existing conditions.
7
<PAGE>
Proved Undeveloped Reserves - Reserves that are expected to be recovered
from new wells on undrilled acreage or from existing wells where a
relatively major expenditure is required for recompletion.
PV10% - The discounted future net cash flows for proved oil and gas
reserves computed using prices and costs, at the dates indicated, before
income taxes and a discount rate of 10%.
Royalty Interest - An interest in an oil and gas property entitling the
owner to a share of oil and gas production free of the costs of production.
Undeveloped Acreage - Oil and gas acreage (including, in applicable
instances, rights in one or more horizons which may be penetrated by
existing well bores, but which have not been tested) to which Proved
Reserves have not been asigned by independent petroleum engineers.
Working Interest - The operating interest under a lease which gives the owner
the right to drill, produce and conduct operating activities on the
property and a share of production, subject to all royalty interests,
and other burdens and to all costs of exploration, development and
operations and all risks in connection therewith.
Item 7. Financial Statements
The Report of the Independent Certified Public Accountant appearing at
page F-1 and the Financial Statements and Notes to Financial Statements
appearing at pages F-2 through F-11 are incorporated herein by reference.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
None
8
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act
The Directors and Officers of the Registrant as of the date of this report are
as follows:
Served as a
Name Age Position Director since
Lex Dolton 67 Chairman, acting President September, 1998
and a Director
Clarey Zingler 53 Secretary/Treasurer, Chief September, 1998
Financial Officer, and a
Director
Edison Baldwin 51 Director September, 1998
All Directors of the Company will hold office until the next annual meeting of
the shareholders, and until successors have been elected and qualified.
Officers of the Company are elected by the Board of Directors at the first
meeting of the Company's shareholders, and hold office until their death,
resignation, or removal from office.
Lex Dolton, Chairman, acting President, and a Director. Mr. Lex Dolton
attended Colorado Christian University from 1950 to 1954 and Colorado
University studying Geology in 1955. He conducted business from 1960
through 1973 as a commercial and residential developer. He purchased land
for development within the Denver Metropolitan area. Mr. Dolton formed
Lexicon Resources in 1977, serving as vice president in charge of foreign
concessions and oil and gas acquisitions. Within the same field, he formed
Concord Royalty Company in 1981, and served through 1992. In 1992, Mr. Dolton
established Natural Buttes Oil and Gas (a privately held oil and gas
company) and assumed the position of Chairman of the Board. Mr. Dolton is
the President and Chairman of the Board of Lexico Resources International
Corporation.
Clarey Zingler, Secretary/Treasurer, Chief Financial Officer, and a Director.
Mr. Clarey Zingler has a Bachelors Degree in Economics, a Masters Degree in
Complex Organizations/Economics, and a PhD (ABD) in Complex Organizations.
He has taught MBA and DBA courses as an Associate Professor at major colleges
and universities, and he has managed the Management Practices Division of a
Big Six accounting firm. Mr. Zingler is Secretary/Treasurer of the Board of
Directors for Lexico Energy Exploration, Inc., and has overall responsibility
for project management and finance. He has extensive experience in industry
and private/public businesses as a controller, chief financial officer, and
vice president of finance.
9
<PAGE>
Edison Baldwin, Director. Mr. Baldwin holds a B.S. in Construction
Management from Colorado State University, and a Masters of Business
Administration from the University of Colorado. He has extensive experience
in construction estimating, cost control, scheduling owner-architect-contractor
liason, labor relations, construction management, and overall company managment
on individual projects of $75 million and an aggregate of $200 million.
Mr. Baldwin has a diverse affiliation with professional organizations
including development authorities, executive committees, and serving as a
Director for Norwest Bank of Fort Collins.
In May, 1999, Mr. Zingler and Mr. Baldwin resigned from their positions as
officers and directors of the Company, and were replaced by Charles Kohlhaas
as President and Director, and Larry Alex as a Director.
Item 10. Executive Compensation
Compensation paid to Officers and Directors is set forth in the Summary
Compensation Table below. The Company may reimburse its Officers and
Directors for any and all out-of-pocket expenses incurred relating to the
business of the Company.
SUMMARY COMPENSATION TABLE
Name and Fiscal Other Annual
Principal Position Year Salary Bonus Compensation
Lex Dolton, 1996 - - -
President 1997 - - -
1998 - - $ 27,000
Clarey Zingler, 1996 - - -
CFO 1997 - - -
1998 - - $ 27,000
Edison Bladwin, 1996 - - -
Director 1997 - - -
1998 - - $ 12,000
10
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of the date of this Report, the stock
ownership of each person known by the Registrant to be the beneficial owner
of five percent or more or the Registrant's common stock, each Officer and
Director individually and all Directors and Officers of the Registrant as a
group:
NO. OF % OF
NAME CLASS SHARES CLASS
Lexico Energy Exploration, Inc. Common 26,500,000 88.27
12835 E. Arapahoe Rd
Tower 2, Ste 300
Englewood, Colorado 80112
Directors and Common - -
Officers as a Group
Item 12. Certain Relationships and Related Transactions
In September, 1998, the Company issued 29,000,000 common shares pursuant
to its merger with Lexico Energy Exploration, Inc.
As of December 31, 1998, 26,500,000 of the Company's common shares,
representing 88% of its common shares outstanding, were held by the Company's
parent, Lexico Energy Exploration, Inc., and 2,500,000 shares had been
distributed for fees and services.
In order to meet working capital needs, the Company has borrowed funds on
a short term basis from Officers and Directors. The short term balance due
to Officers and Directors is currently $786,940.
In October, 1998 the Company granted an officer a stock option to purchase
common shares of the Company. The officer may purchase up to 250,000 common
shares at a price of $2.00 per share anytime between October 30, 1998 and
October 30, 2001. He may purchase up to an additional 250,000 common shares
at a price of $4.00 per share anytime between October 30, 1999 and October 30,
2001. A further 500,000 common shares may be purchased by the officer at a
price of $6.00 per share anytime between October 30, 2000 and October 30,2001.
11
<PAGE>
PART IV
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
-- The following Exhibits are incorporated by reference herein:
3.1 Articles of Incorporation
3.2 By Laws
(b) Reports on Form 8-K
-- There were no reports filed on form 8-K during the last quarter
covered by this report.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized, on June 2, 1999.
LEXICO RESOURCES INTERNATIONAL CORPORATION
By: /s/Charles Kohlhaas
Charles Kohlhaas, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant in
the capacities indicated, on June 2, 1999.
Chairman of the Board, and Director:
/s/Lex Dolton
Lex Dolton
Chief Executive Officer, President and Director:
/s/Charles Kohlhaas
Charles Kohlhaas
Director:
/s/Larry Alex
Larry Alex
13
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LEXICO RESOURCES INTERNATIONAL CORPORATION
FINANCIAL STATEMENTS
December 31, 1997 & 1998
<PAGE>
LEXICO RESOURCES INTERNATIONAL CORPORATION
Financial Statements
TABLE OF CONTENTS
Page
INDEPENDENT AUDITOR'S REPORT ON
THE FINANCIAL STATEMENTS F-1
FINANCIAL STATEMENTS
Balance sheet F-2
Statement of operations F-3
Statement of stockholders' equity F-4
Statement of cash flows F-5
Notes to financial statements F-7
<PAGE>
RONALD R. CHADWICK, P.C.
Certified Public Accountant
3025 South Parker Road
Suite 109
Aurora, Colorado 80014
Telephone (303)306-1967
Fax (303)306-1944
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Lexico Resources International Corporation
Englewood, Colorado
I have audited the accompanying balance sheet of Lexico Resources International
Corporation as of December 31, 1998 and the related statements of operations,
stockholders' equity and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
My responsibility is to express an opinion on these
financial statements based on my audit. The statements of operations,
stockholders' equity and cash flows of Lexico Resources International
Corporation for the year ended December 31, 1997 were audited by other
auditors whose report dated February 12, 1998 expressed an unqualified
opinion on those statements.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I 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. I believe that my audit provides a
reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Lexico Resources
International Corporation as of December 31, 1998, and the results of its
operations and its cash flows for the year ended December 31, 1998
in conformity with generally accepted accounting principles.
Aurora, Colorado
May 19, 1999 RONALD R. CHADWICK, P.C.
<PAGE>
LEXICO RESOURCES INTERNATIONAL CORPORATION
(formerly Trinon, Inc.)
BALANCE SHEET
December 31, 1998
ASSETS
Current assets
Cash $ 1,889
----------
Total current assets 1,889
Wells and equipment 2,446,515
Undeveloped acreage 872,185
Other 1,958
----------
Total Assets $3,322,547
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 84,514
Interest payable 786,940
----------
Total current liabilities 871,454
Deferred tax liability 254,351
----------
Total Liabilities 1,125,805
----------
Stockholders' equity
Common stock: $.001 par value,
100,000,000 shares authorized,
30,020,523 shares issued
and outstanding 30,021
Paid in capital 2,787,211
Accumulated deficit (620,490)
----------
Total Stockholders' Equity 2,196,742
----------
Total Liabilities and Stockholders' Equity $3,322,547
==========
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
LEXICO RESOURCES INTERNATIONAL CORPORATION
(formerly Trinon, Inc.)
STATEMENT OF OPERATIONS
For The Years Ended December 31, 1997 and 1998
1997 1998
---------- ----------
Sales $ - $ -
Operating expenses 112,759 246,417
--------- ---------
Income (loss) from operations (112,759) (246,417)
--------- ---------
Other income (expense):
Interest expense ( -) ( 38,880)
--------- ---------
Income (loss) before provision
for income taxes (112,759) (285,297)
Provision for income tax - -
--------- ---------
Income (loss) from
continuing operations (112,759) (285,297)
Discontinued operations:
Operations of subsidiaries
terminated as subsidiaries
on 11/4/97 (220,434) -
--------- ---------
Net income (loss) $(333,193) $(285,297)
========= =========
Net income (loss) per share
(Basic and fully diluted)
Operations $ ( 8.74) $ ( 0.04)
Discontinued operations ( 17.09) -
--------- ---------
$ ( 25.83) $ ( 0.04)
========= =========
Weighted average number of
common shares outstanding 12,898 8,059,975
========= =========
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
LEXICO RESOURCES INTERNATIONAL CORPORATION
(formerly Trinon, Inc.)
STATEMENT OF STOCKHOLDERS' EQUITY
For The Years Ended December 31, 1997 and 1998
<TABLE>
<S> <C> <C> <C> <C>
COMMON STOCK Stock
Par value $.001 Paid in Subscrip. (Accumulated
Shares Amount Capital Receivable Deficit )
Balances at
Dec. 31, 1996 6,250 $ 6 $ 1,994 $ - $ (2,000)
Issuance of stock
for subsidiary 15,727 16 2,500
Stock cancellation(15,727) (16) (2,500)
Issuance of stock
for services 10,863 11 15,173
Sales of
common stock 1,443 1 330,099
Issuance of stock
for expenses 75 1 2,999
Common stock
subscribed 75 1 2,999 (3,000)
Net gain (loss)
for the year ended
Dec. 31, 1997 (333,193)
---------- ------- ---------- ------- ---------
Balances at
Dec. 31, 1997 18,706 $ 20 $ 353,264 $(3,000) $(335,193)
Issuance of stock
for services 989,317 989 6,604
Sales of
common stock 12,500 12 19,988
Stock issued
for assets 29,000,000 29,000 2,407,355
Common stock
subscribed 3,000
Net gain (loss)
for the year ended
Dec. 31, 1998 (285,297)
---------- ------- ---------- ------- ----------
Balances at
Dec. 31, 1998 30,020,523 $30,021 $2,787,211 $ - $(620,490)
========== ======= ========== ======= =========
</TABLE>
All share figures reflect a one for four reverse common stock split in
February, 1998, a one for four reverse common stock split in May, 1998,
and a one for ten reverse common stock split in June, 1998.
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
LEXICO RESOURCES INTERNATIONAL CORPORATION
(formerly Trinon, Inc.)
STATEMENT OF CASH FLOWS
For The Years Ended December 31, 1997 and 1998
1997 1998
---------- ----------
Cash Flows From
Operating Activities:
Net income (loss) $(333,193) $(285,297)
Adjustments to reconcile
net income (loss) to
net cash provided by
(used for) operating
activities:
Depreciation and amortization 2,507
Compensatory stock issuance 15,184 7,593
Compensatory debt issuance 110,949
Prepaid expenses (6,915) 9,915
Accounts payable and accruals 10,514 74,000
--------- ---------
Net cash provided by (used
for) operating activities (314,410) (80,333)
Cash Flows From
Investing Activities:
Office equipment (4,465)
--------- ---------
Net cash provided by (used
for) investing activities (4,465)
--------- ---------
-Continued On Following Page-
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
LEXICO RESOURCES INTERNATIONAL CORPORATION
(formerly Trinon, Inc.)
STATEMENT OF CASH FLOWS
-Continued From Previous Page-
1997 1998
---------- ----------
Cash Flows From
Financing Activities:
Receipts from notes payable 82,697
Payments on notes payable (31,700)
Sales of common stock 330,100 20,000
--------- ---------
Net cash provided by (used
for) financing activities 330,100 70,997
--------- ---------
Net Increase (Decrease)
In Cash 15,690 (13,801)
Cash At The Beginning
Of The Period 15,690
--------- ---------
Cash At The End
Of The Period $ 15,690 $ 1,889
========= =========
Schedule of Non-Cash Investing and Financing Activities:
- --------------------------------------------------------
During the year ended December 31, 1997, the Company issued 10,863 common
shares for services valued at $15,184.
During the year ended December 31, 1998, the Company issued 29,000,000
common shares to purchase the net assets of Lexico Energy Exploration, Inc.
valued at $2,436,355, and issued 989,317 common shares for $7,593 in services.
Supplemental Disclosure
- -----------------------
Cash paid during the year for:
1997 1998
--------- ---------
Interest $ - $ -
Income taxes $ - $ -
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
LEXICO RESOURCES INTERNATIONAL CORPORATION
(Formerly Trinon, Inc.)
Notes to Financial Statements
NOTE 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
Lexico Resources International Corporation ("Lexico", the "Company") was
incorporated in the state of Utah on April 16, 1986, then on December 30,
1993 dissolved as a Utah corporation and reincorporated as a Nevada
corporation. Effective September 30, 1998 the Company entered into an asset
purchase agreement with Lexico Energy Exploration, Inc., whereby the
Company exchanged 97% of its issued and outstanding common stock for the
major assets of Lexico Energy Exploration, Inc. Subsequent to September 30,
1998, Lexico Energy Exploration, Inc. and Lexico Resources International
Corporation will remain as separate legal entities, (with Lexico Energy
Exploration, Inc. as the parent), and operate as separate legal entities.
The Company's primary business purpose is to engage in the exploration and
production of oil and gas. On September 30, 1998 the corporate name was
changed from Trinon, Inc. to Lexico Resources International Corporation.
Oil and gas properties
The Company follows the successful efforts method of accounting for its oil
and gas activities. Under this accounting method, costs associated with the
acquisition, drilling and equipping of successful exploratory and development
wells are capitalized. Geological and geophysical costs, delay rentals and
drilling costs of unsuccessful exploratory wells are charged to expense as
incurred. Depletion and depreciation of the capitalized costs for producing
oil and gas properties are provided by the unit-of-production method based
on proved oil and gas reserves. Undeveloped properties are periodically
assessed for possible impairment due to unrecoverability of costs invested.
Cash received for partial conveyances of property interests are treated as
a recovery of cost and no gain or loss is recognized.
Income tax
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and operating
loss carryforwards and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion
of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates
on the date of enactment.
F-7
<PAGE>
LEXICO RESOURCES INTERNATIONAL CORPORATION
(formerly Trinon, Inc.)
Notes to Financial Statements - Continued
NOTE 1. ORGANIZATION, OPERATIONS, AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued):
Cash and cash equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less as cash equivalents.
Accounting year
The Company employs a calendar accounting year, and recognizes income and
expenses based on the accrual method of accounting.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Net income (loss) per share
The net income (loss) per share is computed by dividing the net income (loss)
by the weighted average number of shares of common outstanding. Warrants,
stock options, and common stock issuable upon the conversion of the Company's
preferred stock (if any), are not included in the computation if the effect
would be anti-dilutive and would increase the earnings or decrease loss per
share.
NOTE 2. OIL AND GAS PROPERTIES
The Company holds working interests in approximately 4,700 acres in Uintah
County, Utah, which are carried at $872,185. The Company also holds a 37.5%
working interest in Conoco 13-1 with possible reserves, located on the
aforementioned property, and carried at its capitalized cost of $898,816.
In addition, the Company holds an interest in the Conoco Well 22-1, also in
Uintah County, Utah, with capitalized well costs of approximately $1,528,448.
A portion of the Company's share of any revenue from the 22-1 Well is
pledged to repay a $520,880 outstanding line of credit.
F-8
<PAGE>
LEXICO RESOURCES INTERNATIONAL CORPORATION
(Formerly Trinon, Inc.)
Notes to Financial Statements - Continued
NOTE 3. RELATED PARTY TRANSACTIONS
The Company's interests in its Uintah County, Utah properties were acquired
through a corporation controlled by common ownership.
NOTE 4. INCOME TAXES
Deferred income taxes arise from the temporary differences between financial
statement and income tax recognition of net operating losses. These loss
carryovers are limited under the Internal Revenue Code should a significant
change in ownership occur.
At December 31, 1998 the Company had approximately $620,000 of unused
federal net operating loss carryforwards, which begin to expire
in the year 2001. A deferred tax asset, arising from the net operating loss
carryover, of approximately $242,000 has been offset by a 100% valuation
allowance.
The Company has a deferred tax liability of $254,351, resulting from a book vs.
tax carrying value difference of $652,185 of certain oil and gas properties
acquired through its parent company, Lexico Energy Exploration, Inc.
F-9
<PAGE>
LEXICO RESOURCES INTERNATIONAL CORPORATION
(formerly Trinon, Inc.)
Notes to Financial Statements - Continued
NOTE 5. NOTES PAYABLE
At December 31, 1998 the Company had the following notes payable outstanding:
Balances at
December 31,
1998
-----------
Related party notes payable,
unsecured, non-interest bearing,
due on demand $ 266,060
Related party note payable,
secured by production payments,
balance includes principal of
$482,000 plus interest,
due on demand 520,880
---------
Total notes payable 786,940
Less current portion (786,940)
---------
Long term notes payable $ -
=========
The schedule of maturities by fiscal year for all notes outstanding is
as follows:
Years ending December 31,
1999 $786,940
--------
Total $786,940
========
F-10
<PAGE>
LEXICO RESOURCES INTERNATIONAL CORPORATION
(formerly Trinon, Inc.)
Notes to Financial Statements - Continued
NOTE 6. STOCKHOLDERS' EQUITY
Common stock
The Company has 100,000,000 authorized shares of common stock, par value $.001,
with 30,020,523 shares outstanding as of December 31, 1998.
Asset acquisition
On September 30, 1998 the Company issued 29,000,000 shares of common stock,
representing 97% of its shares outstanding, for the net assets of Lexico
Energy Exploration, Inc., including several oil and gas properties in the
Uintah Basin of Utah. The assets were valued at approximately $2,400,000.
As a result of the exchange the Company is now a subsidiary of Lexico Energy
Exploration, Inc., and each entity will continue to operate separately.
Stock option
In October, 1998 the Company granted an officer a stock option to purchase
common shares of the Company. The officer may purchase up to 250,000 common
shares at a price of $2.00 per share anytime between October 30, 1998 and
October 30, 2001. He may purchase up to an additional 250,000 common shares
at a price of $4.00 per share anytime between October 30, 1999 and October 30,
2001. A further 500,000 common shares may be purchased by the officer at a
price of $6.00 per share anytime between October 30, 2000 and October 30, 2001.
F-11
<PAGE>
LEXICO RESOURCES INTERNATIONAL CORPORATION
Supplemental Information (Unaudited)
Year Ended December 31, 1998
Capitalized Costs Relating to Oil & Gas
Producing Activities at December 31, 1998
- -----------------------------------------
Unproved oil and gas properties $ 872,185
Proved oil and gas properties 2,446,515
Support equipment and facilities
-----------
3,318,700
Less accumulated depreciation, depletion,
amortization, and impairment
-----------
Net capitalized costs $ 3,318,700
===========
Costs Incurred in Oil and Gas Producing
Activities for the Period Ended December 31, 1998
- -------------------------------------------------
Property acquisition costs
Proved $ 2,446,515
Unproved 652,185
Exploration costs -
Development costs -
Results of Operations for Oil and Gas Producing
Activities for the Period Ended December 31, 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 amorization
-----------
-
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 cashflow 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 credits, 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>
LEXICO RESOURCES INTERNATIONAL CORPORATION
Supplemental Information (Unaudited) - Continued
Period Ended December 31, 1998
Reserve Information
- -------------------
Oil Gas
(Bbls) (Bcf)
------ -----
Proved developed and undeveloped reserves
Beginning of year - -
Revisions of previous estimates
Improved recovery
Purchase of minerals in place 49,130 90.707
Extensions and discoveries
Production
Sales of minerals in place
------ ------
End of year 49,130 90.707
====== ======
Proved developed reserves
Beginning of year - -
End of year 49,130 90.707
Standardized Measure of Discounted Future
Net Cash Flows at December 31, 1998
Future cash inflows $ X
Future production costs (X)
Future development costs (X)
Future income tax expenses (X)
----
Future net cash flows (10% annual discount
for estimated timing of cash flows) (X)
----
Standardized measures of discounted future net cash
flows relating to proved oil and gas reserves $ X
====
The following reconciles the change in the standardized measure of
discounted future net cash flow during the year ended December 31, 1998.
Beginning of year $ X
Sales of oil and gas produced, net of production costs (X)
Net changes in prices and production costs X
Extensions, discoveries, and improved recovery,
less related costs X
Development costs incurred during the year which
were previously estimated X
Net change in estimated future development costs X
Revisions of previous quantity estimates X
Net change from purchases and sales of minerals in place X
Accretion of discount X
Net change in income taxes X
Other X
----
End of year $ X
====
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10KSB FOR THE YEAR ENDED
12/31/98.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 1889
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1889
<PP&E> 3318700
<DEPRECIATION> 0
<TOTAL-ASSETS> 3318700
<CURRENT-LIABILITIES> 871454
<BONDS> 0
0
0
<COMMON> 30021
<OTHER-SE> 2166721
<TOTAL-LIABILITY-AND-EQUITY> 3322547
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 246417
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38880
<INCOME-PRETAX> (285297)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (285297)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
