SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the Quarterly Period Ended September 30, 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 number 0-21591 MASON OIL COMPANY, INC.
(Name of small business issuer as specified in its charter)
Utah 37-1099747
(State of Incorporation) (I.R.S. Employer
Identification No.)
6337 Ravenwood Drive
Sarasota, Florida 34243
(Address of principal executive offices)
(941) 351-3102
(Issuer's telephone number)
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 __
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS
Not applicable
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date:
There were 11,697,171 shares of the Issuer's common stock, par value $.001 per
share, outstanding as of March 1, 1999.
MASON OIL COMPANY, INC.
Consolidated Balance Sheets
PART I
FINANCIAL INFORMATION
June 30, September 30,
1998 1998
-------------- -------------
(Unaudited)
Assets
Current Assets
Cash and cash equivalents ............................. $ 473,652 $ 328,822
------------- -------------
Property and equipment, at cost
Unproved oil and gas properties,
full cost method ..................................... 274,994 300,790
Vehicles ............................................... 37,185 35,810
Other .................................................. 7,684 7,400
------------- -------------
319,863 344,000
Less accumulated depreciation ......................... (11,980) (13,403)
------------- -------------
307,883 330,597
Other noncurrent assets
Deposits ............................................... 19,682 18,954
Investment in joint venture (Note 2) ................... 528,894 509,330
------------- -------------
Total Other Assets .................................. 548,576 528,284
------------- -------------
Total ................................................... $ 1,330,111 $ 1,187,703
============= =============
Liabilities and Stockholders' (Deficit)
Current Liabilities
Accounts Payable ...................................... $ 32,673 $ 34,970
Notes payable - related party ......................... 197,599 178,426
Current portion of notes payable ...................... 13,588 9,424
------------- -------------
Total Current Liabilities ........................... 243,860 222,820
Notes payable - long term ............................... 1,695 1,695
Deferred salary payable ................................. 72,000 84,000
Stockholders' equity
Common Stock, $.001 par value, ...................... 200,000,000
shares authorized; 11,697,171 shares issued and
outstanding at September 30, 1998 and at
June 30, 1998 ......................................... 11,697 11,697
Additional paid-in capital ............................. 2,485,994 2,485,994
Accumulated deficit .................................... (1,498,738) (1,650,195)
Foreign currency translation adjustment ................ 13,603 31,692
------------- -------------
Total Stockholders' equity .......................... 1,012,556 879,188
------------- -------------
Total Liabilities and Stockholders' Equity .............. $ 1,330,111 $ 1,187,703
============= =============
See notes to consolidated financial statements.
- 2 -
MASON OIL COMPANY, INC.
Condensed Consolidated Statements of Operations
Three Months Ended
September 30,
------------------------------
1997 1998
------------ ------------
(unaudited) (unaudited)
Costs and expenses
General and administrative ................ $ 84,513 $ 150,870
------------ ------------
Total operating costs and expenses ..... 84,513 150,870
Other (income) expense
Interest income ........................... (17,693) (3,848)
Interest expense .......................... 3,406 11,263
------------ ------------
Net loss .................................... $ (70,226) $ (158,285)
============ ============
Basic net loss per common share ............. $ (.01) $ (.02)
============ ============
Weighted average number of shares outstanding 10,890,504 11,697,171
============ ============
See notes to consolidated financial statements.
- 3 -
MASON OIL COMPANY, INC.
Consolidated Statements of Comprehensive Income
Three Months Ended
September 30,
------------------------
1997 1998
--------- ---------
(unaudited) (unaudited)
Net loss .................................. $ (70,226) $(158,285)
--------- ---------
Other comprehensive income, net of tax
Foreign currency translation adjustments 2,290 18,089
--------- ---------
Total other comprehensive income ..... 2,290 18,089
--------- ---------
Comprehensive loss ........................ $ (67,936) $(140,196)
========= =========
See notes to consolidated financial statements.
- 4 -
MASON OIL COMPANY, INC.
Condensed Consolidated Statements of Cash Flows
Three Months Ended
September 30,
-----------------------------
1997 1998
------------ -----------
Cash flows from operating activities
Net loss .................................... $ (70,226) $ (158,285)
Depreciation and amortization ............... 3,671 1,855
Adjustments to reconcile net loss to net
cash used in operating activities
Prepaid expenses and other assets .......... 2,822 (475)
Accounts payable and accrued liabilities ... 2,560 15,842
----------- -----------
Net cash used by operating activities .. (61,173) (141,063)
----------- -----------
Cash flows used by investing activities
Oil and gas exploration expenses ............ (30,189) (35,756)
----------- -----------
Net cash used by investing activities .. (30,189) (35,756)
----------- -----------
Cash flows from financing activities
Payments on notes payable ................... (2,732) (3,639)
----------- -----------
Net cash used by financing activities .. (2,732) (3,639)
----------- -----------
Net effect of currency fluctuations on cash and
cash equivalents ............................. (11,090) 35,687
Net decrease in cash and cash equivalents ..... (105,184) (144,771)
Beginning cash and cash equivalents ........... 1,587,627 473,593
----------- -----------
Ending cash and cash equivalents .............. $ 1,482,443 $ 328,822
=========== ===========
See notes to consolidated financial statements.
- 5 -
MASON OIL COMPANY, INC.
Notes to Consolidated Financial Statements
Note 1 - Summary of Accounting Policies
The summary of Mason Oil Company's, Inc. (the "Company") significant accounting
policies are incorporated by reference to the Company's annual report on Form
10-KSB dated June 30, 1998.
The accompanying unaudited condensed financial statements reflect all
adjustments which, in the opinion of management, are necessary for a fair
presentation of the results of operations, financial position and cash flows.
The results of the interim period are not necessarily indicative of the results
for the full year.
Note 2 - Investment in Joint Venture
The Company's investment in a drilling rig joint venture has been recorded at
its estimated net realizable value, which consists of a $300,000 note
receivable, 806,667 shares of the Company's common stock valued at $100,833 and
the title to a portable rig camp valued at $108,497. The note receivable has the
following terms: $50,000 payable on the closing date of the agreement and
$50,000 payable in quarterly installments on the following dates; January 1,
1999, March 30, 1999, June 30, 1999, September 30, 1999 and January 1, 1999. The
note also provides for interest payments of 8% and is secured by the Company's
interest in the drilling rig. The Company has received $50,000 to date on the
note.
Note 3 - New Accounting Standards
Recently Issued Accounting Pronouncements
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (SFAS 130), which establishes standards
for reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include all changes in
equity except those resulting from investments by owners and distributions to
owners. Among other disclosures, SFAS 130 requires that all items that are
required to be recognized under current accounting standards as components of
comprehensive income, be reported in a financial statement that is displayed
with the same prominence as other financial statements.
Also, in June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
(SFAS 131), which supersedes Statement of Financial Accounting Standards No. 14,
"Financial Reporting for Segments of a Business Enterprise." SFAS 131
establishes standards for the way that public companies report information about
operating segments in annual financial statements and requires reporting of
selected information about operating segments in interim financial statements
issued to the public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. SFAS 131 defines
operating segments as components of a company about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. Currently, the Company only has a single business segment.
SFAS No.'s 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997, and require comparative information for
earlier periods to be restated.
In February of 1998, the FASB issued Statement of Financial Accounting Standards
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits" (SFAS No. 132), which supercedes SFAS No.'s 87, 88, and 106. SFAS No.
132 addresses disclosure only and is effective for fiscal years beginning after
December 15, 1997. Restatement of disclosures for prior periods is required. The
adoption of SFAS No. 132 will have no current impact on the Company's financial
statements, as no prior disclosures under SFAS No. 87, 88, or 106 were
applicable.
In June of 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities"(SFAS No.
133). SFAS No. 133 addresses the accounting for derivative instruments,
including certain derivative instruments embedded in other contracts, and
hedging activities. SFAS No. 133 is effective for all fiscal quarters of all
fiscal years beginning after June 15,1999. Initial application of SFAS No. 133
shall be as of the beginning of an entity's fiscal quarter, on that date,
hedging relationships shall be designated anew and documented under the
provisions of this statement. The adoption of SFAS No. 133 shall not be
retroactively applied. This statement currently has no impact on the financial
statements of the Company, as the Company does not hold any derivative
instruments or participate in any hedging activities.
MASON OIL COMPANY, INC.
Item 2. Management's Discussion and Analysis or Plan of Operation
Plan of Operation
The Company has not had revenues from operations in either of the last two
fiscal years. The Company's plan of operation for the next twelve months is set
forth below.
Given its current cash position and resources, the Company anticipates that it
can satisfy its cash requirements, at current operating levels, for a period of
approximately one year. The Company will continue to conduct investigations and
evaluations of promising exploration and development opportunities, and will
gather data with respect to such properties, but will defer any exploration
development or production activities pending receipt of additional financing.
The Company plans to seek to raise additional copies to fund future exploration
and development operations, through joint venture type arrangements or through
the issuance of additional equity in either the private or public markets within
the next 12 months. There can be no assurance that the Company will be able to
obtain any such financing with such time period. The Company's ability to
commence exploration or production activities, including activities required to
maintain its rights under existing licenses will depend on its ability to
promptly obtain needed funding.
As reported in its annual report, the Company has disposed of its one half
interest in a drilling rig and related equipment. The Company will have to make
other arrangements for drilling equipment and services before conducting any
drilling activities, and such arrangements will depend on the receipt of
additional funding.
The Company has abandoned its efforts to purchase Mataranka Oil NP of Sydney,
Australia. However, the Company has continued to investigate the possibility of
participating in various ventures in Indonesia as a means of acquiring proven
reserves. As reported in the Company's latest annual report, it has recently
signed a Memorandum of Understanding with a group in Indonesia which, if
implemented, would result in the Company acquiring an 80% management interest in
a joint venture under a Technical Assistance Contract with Pertamina, the
Indonesian National Oil Company. The implementation of such joint venture
arrangement and pursuit of the related exploration and development opportunities
depends on the Company's receipt of additional funding.
The Company does not anticipate any significant changes in the number of
employees, pending receipt of additional funding and commencement of exploration
and developing activities.
Year 2000
The Year 2000 ("Y2K") problem is the result of two potential malfunctions that
could have an impact on systems and equipment. The first problem arises due to
computers being programmed to use two rather than four digits to define the
applicable year. The second problem arises in embedded chips, where microchips
and microcontrollers have been designed using two rather than four digits to
define the applicable year. If uncorrected, the problem could result in computer
system and program failures or equipment malfunctions that could result in a
disruption of business operations.
To date, the Company has not completed an internal review of its minimal number
of systems to determine major areas of exposure to Y2K issues. The Company does
not, however, operate a significant number of computer systems and does not rely
on computers to regulate any critical corporate functions. Accordingly, the
Company believes that even without any corrective measures being taken, the
Company will not suffer material adverse effects from the Y2K problems. However,
there can be no assurance that the Company will not experience loss of data and
loss of capacity to continue pursuing its operations if Y2K issues are not
addressed and remedied.
In addition, third parties with whom the Company interacts, need to be surveyed
to assess Y2K compliance, or if contingency plans will become necessary. If such
third party systems are not addressed, any failure of such systems could have an
adverse effect on the Company's development and exploration activities. Inasmuch
as the Company intends to rely heavily on third parties for its exploration
activities, if such third parties' systems fail, it could have a material
adverse effect on the Company.
Forward-Looking Statements
The foregoing and subsequent discussion contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended and Section 21E of the Securities Exchange Act of 1934, as amended,
which are intended to be covered by the safe harbors created thereby. These
forward-looking statements include the plans and objectives of management for
future and possible further capitalization of the Company. The forward-looking
statements contained herein are based on current expectations that involve
numerous risks and uncertainties. Assumptions relating to such current
expectations involve judgments with respect to, among other things, future
economic, competitive and market conditions and future business decisions, all
of which are difficult or impossible to predict accurately and many of which are
beyond and control of the Company. Although the Company believes that the
assumptions could be inaccurate and therefore there can be no assurance that the
forward-looking statements included in this Form 10-QSB will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation of the Company or any other person
that the objectives and plans of the Company will be achieved.
PART II
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities and Use of Proceeds.
None; not applicable.
Item 3. Defaults Upon Senior Securities.
There has been no material default in the payment of principal, interest, a
sinking or purchase fund installment, or any other material default not cured
within 30 days with respect to any indebtedness of the Company exceeding five
percent (5%) of the total assets of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's security holders during the
fiscal quarter covered by this report.
Item 5. Other Information.
The Company has no other information to report.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
*Exhibit 3.1 Articles of Incorporation of the Registrant (Filed as
Exhibit 3.1 to the Registrant's Form 10-SB-A1, Reg. No.
0-28184 filed May 31, 1996).
*Exhibit 3.2 Articles of Amendment to Articles of Incorporation.
(Filed as Exhibit 3.2 to the Registrant's Form 10-SB-A1,
Reg. No. 0-28184 filed May 31, 1996).
*Exhibit 3.3 Bylaws of the Registrant. (Filed as Exhibit 3.3 to the
Registrant's Form 10-SB-A1 Reg. No. 0-28184 filed May 31,
1996).
*Exhibit 3.4 Amended Bylaws of the Registrant. (Filed as Exhibit
3.4 to the Registrant's Form 10-SB-A1, Reg. No. 0-28184
filed May 31, 1996).
*Exhibit 10 Stock Purchase Agreement, dated September 10, 1996, by
and between Craig Carpenter, Mason Oil Company, Inc., Paul B.
Ingram and John L. Naylor. (Filed as Exhibit 2.1 to the
Registrant's Form 10-QSB Reg. No. 000-28184 filed November 15,
1996).
*Exhibit 10.1 Stock Purchase and Sale Agreement, dated October 14,
1996, between the Registrant, Paul Ingram and John L.
Naylor. (Filed as Exhibit 2.2 to the Registrant's Form
10-QSB Reg. No. 000-28184 filed November 15, 1996).
*Exhibit 10.2 Access Agreement between Anangu Pitjantjatjara and
John Leonard and Paul Bryan Ingram. (Filed as Exhibit 2.5
to the Registrant's Form 10-QSB, Reg. No. 000-28184 filed
February 21, 1997).
*Exhibit 10.3 Petroleum Exploration License (PEL) No. 61and PEL
Agreement. (Filed as Exhibit 2.3 to the Registrant's Form
10-QSB Reg. No. 000-28184 filed February 21, 1997).
*Exhibit 10.4 Petroleum Exploration License No. 63 and PEL
Agreement. (Filed as Exhibit 2.4 to the Registrant's Form
10-QSB Reg. No. 000-28184 filed February 21, 1997).
*Exhibit 10.5 Joint Venture Agreement between Hemley Exploration
PTY. LTD., an Australian corporation and PT.PUTRA BAKTI
MAHKOTA, an Indonesian corporation.
*Exhibit 10.6 Subscription Agreement and Investment Representation,
dated February 28, 1997. (Filed as Exhibit 10.1 to the
Registrant's Form 10-QSB Reg. No. 000-28184 filed May 20,
1997).
*Exhibit 10.7 Consulting Fee Agreement dated February 28, 1997.
(Filed as a plan to the Registrant's Registration Statement
in Form S-8 Reg. No. 333-24467 filed April 3, 1997).
*Exhibit 10.8 Amendment No. 1 to Consulting Fee Agreement dated May 8,
1997, amending the Consulting Fee Agreement dated
February 28, 1997, and previously filed with the Securities
and Exchange Commission on a Form S-8 Registration
Statement dated March 25, 1997. (Filed as Exhibit 10.2 to
the Registrant's Form 10-QSB Reg. No. 000-28184 filed May 20,
1997).
Exhibit 24 Power of Attorney (included on page 8 herewith).
Exhibit 27 Financial Data Schedule
*Exhibits incorporated herein by reference.
(b) Forms 8-K filed during the last quarter. None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
March __, 1998 MASON OIL COMPANY, INC.
/s/ Paul B. Ingram
Director and President