SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
____
--------------------------
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For the quarterly period ended September 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-33029
F10 OIL & GAS PROPERTIES, INC.
Incorporated pursuant to the Laws of the State of Nevada
Internal Revenue Service - Employer Identification No. 87-0382438
903 West Montgomery
Suite 4311
Willis, TX 77378
(936) 449-5130
Address of principal executive offices and Issuer's Telephone Number
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes __X_ No __ _
The total number of shares of the registrant's Common Stock, $.001 par value,
outstanding on November 17, 2003, was 12,916,161.
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION 3
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) 3
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 2003 3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
2002 AND SEPTEMBER 30, 2003 4
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30,
2002 AND SEPTEMBER 30, 2003 5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED SEPTEMBER 30,
2002 AND SEPTEMBER 30, 2003 6
STATEMENT OF SHAREHOLDERS' DEFICIT FROM JULY 15, 2001 (INCEPTION) THROUGH
SEPTEMBER 30, 2003 7
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 11
ITEM 3. CONTROLS & PROCEDURES 13
PART II - OTHER INFORMATION 13
ITEM 1. LEGAL PROCEEDINGS 13
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16
ITEM 5. OTHER INFORMATION 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURE 16
CERTIFICATIONS
EXHIBIT 31.1 17
EXHIBIT 31.2 18
EXHIBIT 32.1 19
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements for Period Ending September 30, 2003.
F10 OIL & GAS PROPERTIES, INC.
CONSOLIDATED BALANCE SHEET
As of September 30, 2003
(Unaudited)
Assets September 30, 2003
------------------
(Unaudited)
Current assets:
Cash $ 82,373
Oil Revenues Receivable 2,630
Inventory 7,900
Prepaid Expenses 157,404
------------------
Total current assets 250,307
------------------
Property and equipment, net 1,735
Long-term Portion of Prepaids 46,715
Oil and Gas Investments 77,500
------------------
$ 376,257
==================
Liabilities and Shareholders' Deficit
Current liabilities:
Accounts payable $ 87,180
Accrued Interest 38,461
Notes payable, net of discounts of $40,657 356,126
Payable to Shareholders 31,243
------------------
Total current liabilities 513,010
------------------
Long-term portion of notes payable 27,600
------------------
Total liabilities 540,610
------------------
Shareholders' deficit:
Preferred stock, no par value; 50,000,000
shares authorized and no shares outstanding -0-
Common stock, par value $0.001 per share;
75,000,000 shares authorized; 12,916,161
shares outstanding as of September 30, 2003 12,916
Additional paid-in capital 2,854,949
Accumulated deficit (3,032,218)
------------------
Total Shareholders' deficit (164,353)
------------------
Total liabilities and shareholders' deficit $ 376,257
==================
The accompanying notes are an integral part of these
consolidated financial statements.
3
F10 OIL & GAS PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months Three months
ended ended
September 30, 2003 September 30, 2002
--------------------------- ----------------------------
Net Revenues $ 7,371 $ -
Cost of Sales 1,177 -
--------------------------- ----------------------------
Gross Profit 6,194 -
General and administrative expenses 211,097 -
--------------------------- ----------------------------
Loss from operations (204,903) -
Gain (Loss) on Securities Sales - 6,417
Interest Expense (32,852) (63,715)
Loss incurred in discontinued business - (480,775)
--------------------------- ----------------------------
Loss before provision for income taxes (237,755) (538,073)
--------------------------- ----------------------------
Provision for income taxes 0 0
--------------------------- ----------------------------
Net Loss (237,755) (538,073)
=========================== ============================
Basic net loss per weighted share $ (0.02) $ (14.57)
Basic Weighted Average Shares Outstanding 12,534,161 36,919
The accompanying notes are an integral part of these
consolidated financial statements.
4
F10 OIL & GAS PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six months Six months
ended ended
September 30, 2003 September 30, 2002
-------------------------- --------------------------
Net Revenues $ 8,964 $ -
Cost of Sales 1,508 -
-------------------------- --------------------------
Gross Profit 7,456 -
General and administrative expenses 391,545 -
-------------------------- --------------------------
Loss from operations (384,089) -
Gain (Loss) on Securities Sales - 1,710
Interest Expense (104,126) (109,469)
Loss incurred in discontinued business - (859,420)
-------------------------- --------------------------
Loss before provision for income taxes (488,215) (967,179)
-------------------------- --------------------------
Provision for income taxes 0 0
-------------------------- --------------------------
Net Loss $ (488,215) $ (967,179)
========================== ==========================
Basic net loss per weighted share $ (0.05) $ (28.20)
Basic Weighted Average Shares Outstanding 10,729,876 34,297
The accompanying notes are an integral part of these
consolidated financial statements.
5
F10 OIL & GAS PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months Six months
ended ended
September 30, 2003 September 30, 2002
----------------------- -----------------------
Cash flows from Operating Activities:
Net loss $ (488,215) $ (967,179)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 238 3,389
Amortization of discounts on notes payable 35,936 73,871
Expenses paid with stock 69,544 533,681
Chages in operating assets and liabilities:
Prepaid Expenses 90,297 234,003
Accounts payable (60,001) 23,251
Accounts receivable (2,265) (4,670)
Inventory (7,900) (35,922)
Deferred Expenses 5,411 26,109
Accrued Expenses 2,221 39,988
Deposits 0 5,000
----------------------- -----------------------
Net cash used in operating activities (354,734) (68,479)
----------------------- -----------------------
Cash flows from investing activities:
Acquisition of property and equipment (557) (5,131)
Investment (66,000) (94,180)
----------------------- -----------------------
Net cash provided by investing activities (66,557) (99,311)
Cash flows from financing activities:
Sale of common stock 505,465 4,250
Note receivable from shareholder 0 (240,000)
Stock Subscriptions Receivable 0 43,486
Proceeds from notes payable, net of issuance costs 0 327,513
Cash Repayment of principal on loans (74,447) (40,000)
Payments on capital lease 0 (2,133)
Change in amounts owed to Officer 19,350 89,448
----------------------- -----------------------
Net cash provided by financing activities 450,368 182,564
----------------------- -----------------------
Net increase (decrease) in cash 29,077 14,774
Cash, at beginning of period 53,296 (14,274)
----------------------- -----------------------
Cash, at end of period $ 82,373 $ 500
======================= =======================
Supplemental Disclosure of Cash Flow Information:
Cash Paid for: Interest 20,517 8,398
Taxes 0 0
A total of 1,385,000 shares of restricted common stock
were issued to settle notes payable, accrued interest
and some accounts payable in the six months September 30, 2003.
The accompanying notes are an integral part of these
consolidated financial statements.
6
F10 OIL & GAS PROPERTIES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT
(Unaudited)
Common Preferred
Stock Stock Additional
Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit Total
----------- ---------- ------------ ----------- ----------- ------------- ----------
Stock issued to founder on 7/15/01 6,090,000 $ 6,090 $ $ (6,090) $ $ -
Stock issued in Sept and October
2001 for notes payable 310,000 310 69,337 - 69,647
Value of Warrants issued in
conjunction with notes payable 111,080 111,080
Shares issued in Petrex merger 445,854 446 (446) -
Officers compensation deemed contribution
to capital 25,990 25,990
Value of warrants issued to consultant 10,000 10,000
Stock Issued for Services in year ended
March 31, 2002 3,006,056 3,006 741,110 744,116
Net loss for year ended March 31, 2002 - - - (813,640) (813,640)
Value of Warrants issued in
conjunction with notes payable 86,559 86,559
Stock Issued in Private Placement 14,286 14 4,236 4,250
Stock sold under option agreements in
quarter ended September 30, 2002 600,000 600 (600) -
Stock Issued for Services from
April 1, 2002 through December 2, 2002 2,841,000 2,841 277,571 280,412
Preferred Stock issued in rescinded
acquisition 4,200,000 4,200,000 (4,200,000) -
Preferred Stock cancelled upon
rescission (3,800,000) (3,800,000) 3,800,000 -
Adjustment for 300 to 1 reverse
stock split (13,262,839) (13,263) 13,263 -
Rounding for reverse stock split 713 1 (1) -
Stock subscription receivable 10,000,000 10,000 -
Stock issued for services from
December 2002 through March 31, 2003 1,369,400 1,369 159,406 160,775
Stock issued to officer in exchange
for debt 2,000,000 2,000 18,000 20,000
Stock issued in exchange for debt 360,000 360 62,640 63,000
Conversion of Preferred stock into common 600,000 600 (400,000) (400,000) 399,400
Proceeds of Stock Subscription received (2,110,000) 268,371 268,371
2,110,000 (2,110)
Net loss for period ended March 31, 2003 - - - - - (1,730,364) (1,730,364)
Stock issued to retire options 500,000 500 (500) -
Stock issued in exchange for debt 1,385,000 1,385 302,814 304,199
Stock issued for services from
April - Sept 2003 625,000 625 61,875 62,500
Stock issued to officer in exchange
for debt 1,500,000 1,500 148,500 150,000
Proceeds of Stock Subscription received (2,407,691) 505,466 505,466
2,407,691 (2,408)
Cancellation of remaining
Regulation S Offering (5,482,309) (5,482)
Cancellation of stock (1,000) (1) 1 -
Stock issued for Purchase Option 15,000 15 1,485 1,500
Net loss for six months ended
September 30, 2003 - - - - - (488,214) (488,214)
----------- ---------- ------------ ----------- ----------- ------------- ----------
Balance at September 30, 2003 12,916,161 $ 12,916 - $ - $ 2,854,949 $ (3,032,218) $ (164,353)
=========== ========== ============ =========== =========== ============= ==========
The accompanying notes are an integral part of these
consolidated financial statements.
7
F10 OIL & GAS PROPERTIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003
NOTE 1 - OVERVIEW AND BASIS OF PRESENTATION
Overview
F10 Oil & Gas Properties, Inc, formerly Force 10 Trading, Inc., (hereinafter
referred to as "F10"), is a company that invests in oil and natural gas
exploration and oil and natural gas producing properties. F10 is currently
focusing its acquisition efforts on producing oil and natural gas wells with a
net positive cash flow.
From July 15, 2001 through November 1, 2002 F10, through its subsidiary Capital
Market Mentors, Inc. ("CMM"), had offered stock-trading tutorials designed to
educate students in a comprehensive course in stock trading that combined
professionally written manuals and lesson plans with one-on-one training with
professional trading mentors. F10 had signed exclusive licensing agreements with
authors of high quality trading manuals. On November 1, 2002, F10 closed its
operations in the stock training education field. F10 had also operated a stock
trading office in Draper, Utah. This office was closed in October of 2002. In
the current quarter, F10 has decided to start selling stock training tutorials
again to supplement its oil and gas revenues. F10 recently hired a new President
of CMM who will be paid on a commission-only basis. As of September 30, 2003,
sales efforts had not yet commenced.
On November 1, 2002, F10 reentered the development stage until it completed its
first oil and gas investment on March 1, 2003. This investment was made in a
joint venture with six producing wells and F10 began reporting oil and gas
revenues and was no longer in the development stage.
The operations of F10 in its stock-trading and tutorials business are shown as
discontinued business operations in the consolidated financial statements.
Interim Financial Information
The financial statements presented in this report have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission for interim
reporting and include all adjustments which are, in the opinion of management,
necessary for fair presentation. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been omitted pursuant to
such rules and regulations for interim reporting. These financial statements for
the three- and six-month periods ended September 30, 2003 are not necessarily
indicative of the results which may be expected for an entire fiscal year.
NOTE 2 - PER SHARE INFORMATION
Basic loss per common share for the three and six months ended September 30,
2003 and September 30, 2002 have been computed based on net income (loss)
divided by the weighted average number of common
8
shares outstanding during the period. Dilutive net loss per share is not
reported since the effects are anti- dilutive and F10 is in a net loss position.
For the three months ended September 30, 2003 and September 30, 2002, the
weighted average number of shares outstanding totaled 12,534,161 and 36,919,
respectively. For the six months ended September 30, 2003 and September 30,
2002, the weighted average number of shares outstanding totaled 10,729,876 and
34,297, respectively.
NOTE 3 - GOING CONCERN
As shown in the accompanying financial statements, F10 incurred a net loss of
$488,215 for the six months ended September 30, 2003. F10 has incurred total
losses of $3,032,218 since its inception. Therefore, the ability of F10 to
continue as a going concern is dependent on obtaining additional capital and
financing. The accompanying financial statements do not include any adjustments
that might be necessary if F10 is unable to continue as a going concern.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of September 30, 2003:
Furniture $ 1,056
Equipment 1,500
---------
2,556
Less accumulated depreciation ( 821)
---------
$ 1,735
=========
NOTE 5 - NOTES PAYABLE
During the period from inception through June 2003, F10 has issued promissory
notes to third parties totaling $766,500 under various private placements. The
notes have interest rates from 10-12% per annum and have terms varying from 120
days to 12 months from the date of issuance. Some of these notes contained a
detachable stock purchase warrant. All warrants have either expired or been
written off due to a one for three hundred reverse stock split effectuated by
F10 in December of 2002. The principal balance on the remaining notes totals
$424,383 as of September 30, 2003.
In the quarter ended June 30, 2003, F10 issued 1,185,000 shares of its
restricted common stock and entered into new note agreements totaling $55,000 to
settle total debts of $332,156, including accrued interest.
As of September 30, 2003, F10 was in default on notes with a principal balance
totaling $275,000.
NOTE 6 - SUBSEQUENT EVENTS
SEC v. David M. Wolfson, United States District Court, District of Utah, Central
Division, Case No. 2:03- CV-0914K.
9
On October 16, 2003, the Securities and Exchange Commission through its
Salt Lake City, Utah, office filed a complaint in the United States District
Court for the District of Utah against 21 defendants including F10 Oil & Gas
Properties, Inc., Jon H. Marple, the former Chief Executive Officer of F10, Mary
E. Blake, the former President of F10, Jon R. Marple, a consultant to F10 and
Grateful Internet Associates, LLC, a Colorado limited liability company owed by
Jon R. Marple. The complaint alleges that overseas investors were defrauded by a
scheme organized by defendants David Wolfson, Gino Carlucci and Sukumo Ltd. to
sell securities in five United States-based issuers including F10. F10, with its
former officers Jon H. Marple and Mary E. Blake, are alleged to have made false
or incomplete filings with the SEC and to have manipulated the price of F10's
securities in violation of the antifraud provisions of Section 17(a) of the
Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and
Rule 10b-5 promulgated thereunder, the issuer reporting provision of Section
13(a) of the Exchange Act, and Rules 12b-20, 13a-1 and 13a-13 promulgated under
the Exchange Act.
The complaint seeks the entry of a preliminary and permanent injunction against
all defendants including F10 and its former officers, Jon H. Marple and Mary E.
Blake, including the return of "ill gotten" gains, and seeks asset freezes
against 16 of the defendants including F10 and its former officers.
F10's bank account with a balance of approximately $60,000 is currently frozen.
The court has scheduled a December 2003 hearing on the SEC's application for a
preliminary injunction.
Management of F10 believes that F10 has meritorious defenses to the complaint
and intends to vigorously defend the action.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Period Ending September 30, 2003)
Unaudited Financial Data
The discussion and analysis contained herein should be read in conjunction with
the preceding financial statements, the information contained in F10's Form
10-KSB and other filings with the SEC. Except for the historical information
contained herein, the matters discussed in this 10-QSB contain forward looking
statements that are based on management's beliefs and assumptions, current
expectations, estimates, and projections. Statements that are not historical
facts, including without limitation statements which are preceded by, followed
by or include the words "believes," "anticipates," "plans," "expects," "may,"
"should," or similar expressions are forward-looking statements. Many of the
factors that will determine F10's future results are beyond the ability of F10
to control or predict. These statements are subject to risks and uncertainties
and, therefore, actual results may differ materially. All subsequent written and
oral forward-looking statements attributable to F10, or persons acting on its
behalf, are expressed qualified in their entirety by these cautionary
statements. F10 disclaims any obligation to update any forward-looking
statements whether as a result of new information, future events or otherwise.
Results of Operations -
Revenues
F10 reported total revenues of $8,964 from its oil investments in the
six months ended September 30, 2003. This revenue was generated by the Cowboy
Baker and Hancock Barnett Shale joint ventures in which F10 holds an ownership
interest. Both of these joint ventures are managed by the Lexus Energy Group,
based in Dallas, Texas. The oil and gas revenues of F10 in the quarter ended
September 30, 2003 was $7,371.
F10 was not involved in the oil and gas industry in 2002. However, F10
reported total revenues of $104,358 and $207,476 in the three and six months
ended September 30, 2002, respectively. These revenues were made up from
commission revenues from trading and from the sales of the educational materials
offered by Capital Market Mentors, Inc., a wholly owned subsidiary, and are now
included in the loss incurred in discontinued business.
Cost of Sales
The cost of oil sales for the three and six months ended September 30,
2003 was $1,177 and $1,508, respectively. These cost of sales were incurred by
the Cowboy Baker and Hancock Barnett Shale joint ventures in which F10 holds
ownership interests. F10's gross profit for the three and six months was $6,194
and $7,456, respectively.
The cost of sales for the quarter and six months ended September 30,
2002 were $54,559 and $93,974, respectively. This produced gross profits of
$49,799 and $113,502, respectively. The cost of sales and gross profit for the
quarter and six months ended September 30, 2002 are included as part of the loss
incurred in discontinued business line of the financial statements herein.
11
General and Administrative Expenses
General and administrative expenses in the quarter and six-month
periods ended September 30, 2003 totaled $211,097 and $391,545, respectively. Of
the expenses in the current quarter, amounts paid for officer's salaries and
consultants represented the largest portions of expenses. F10 incurred
consulting expenses of $77,739 in the current quarter. This amount was primarily
paid in stock and represented 36.8% of total general and administrative
expenses. F10 also accrued and paid $79,500 in salaries to officers. Of the
current quarter's officer's salaries, $45,000 represents amounts paid in stock.
The officer's salaries for the quarter represented 37.7% of total general and
administrative costs. In the six months ended September 30, 2003, F10 incurred
consulting fees of $159,441 and officer's salaries of $139,500. These amounts
represented 40.7% and 35.6% of total general and administrative costs,
respectively.
General and administrative expenses in the three-month and six-month
periods ended September 30, 2002 totaled $530,574 and $972,922, respectively. Of
the expenses in these periods, amounts paid for consultants represented the
largest portion of expenses. F10 incurred consulting fees of $269,529 and
$444,681 in the current quarter and six-month period, respectively. These
amounts were primarily paid in stock and represented 50.8% and 45.7% of total
General & Administrative expenses, respectively. The general and administrative
expenses for the quarter and six-months ended September 30, 2002 are included as
part of the loss incurred in discontinued business line of the financial
statements herein.
Interest Expense
F10 incurred interest expense of $32,852 in the quarter ended September
30, 2003 and $104,126 in the six-months ended on September 30, 2003. F10 reached
settlements with a number of note holders and this has decreased interest
expense in the current quarter compared to that in the prior quarter. F10
incurred interest expense of $63,715 in the quarter ended September 30, 2002.
Interest expense for the six-month period ended September 30, 2002 was $109,469.
The current quarter's interest expense represents a decrease of 48.4% from the
interest expense incurred in the same quarter of 2002. This decrease represents
the lower average debt balance of F10.
Net Loss
F10's net loss for the quarter was $237,755. This represents a net
loss per share of $(0.02) per share. The net loss is 55.8% less than the loss
from the quarter ended September 30, 2002 which was $538,073. The loss in the
quarter ended September 30, 2002 represented a loss per share of $(14.57). F10's
net loss in the current quarter compared with the loss in the quarter ended
September 30, 2002 is a result of decreased general and administrative costs.
F10's previous line of business required a higher level of staffing and thus a
higher salary expense.
F10's net loss for the six months ended September 30, 2003 was
$488,215. This represents a net loss per share of $(0.05) per share. The net
loss is 49.5% less than the loss from the six-months ended September 30, 2002
which was $967,179. The loss in the six-months ended September 30, 2002
represented a loss per share of $(28.20).
12
Liquidity and Capital Resources
During the six-months ended September 30, 2003 net cash used by
operating activities was $354,734. F10 supported this operating loss through the
issuance of restricted stock issued under an offering under Regulation S of the
Securities Exchange Act.
F10's current assets as of September 30, 2003 were $250,307 and its
current liabilities equaled $513,010, generating a net working capital deficit
of $262,703.
During the six-months ended September 30, 2002 F10 used net cash of
$68,479 in its operating activities. These operating activities have been
discontinued. F10 supported this operating loss through the issuance of notes
under private placements.
ITEM 3. CONTROLS & PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
As of September 30, 2003, we carried out an evaluation, under the
supervision and with the participation of company management, including the
Chief Executive Officer and Chief Financial Officer, of the effectiveness of our
disclosure controls and procedures. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that our disclosure
controls and procedures are effective.
(b) Changes in Internal Controls
There were no significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation.
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings
Two note holders who each loaned F10 $50,000 on February 1, 2002 have
retained an attorney to negotiate a settlement with F10. The aggregate amount
owed to these individuals as of September 30, 2003 was $132,500, including
accrued interest. F10 was in negotiations with the note holders' attorney but
has not been in contact with the attorney since August of 2003.
SEC v. David M. Wolfson, United States District Court, District of Utah, Central
Division, Case No. 2:03- CV-0914K.
On October 16, 2003, the Securities and Exchange Commission through its
Salt Lake City, Utah, office filed a complaint in the United States District
Court for the District of Utah against 21 defendants including F10 Oil & Gas
Properties, Inc., Jon H. Marple, the former Chief Executive Officer of F10, Mary
E. Blake, the former President of F10, Jon R. Marple, a consultant to F10 and
Grateful Internet Associates, LLC, a Colorado limited liability company owed by
Jon R. Marple. The complaint alleges that overseas investors were defrauded by a
scheme organized by defendants David Wolfson, Gino Carlucci and Sukumo Ltd. to
sell securities in five United States-based issuers including F10. F10, with its
former officers Jon H. Marple
13
and Mary E. Blake, are alleged to have made false or incomplete filings with the
SEC and to have manipulated the price of F10's securities in violation of the
antifraud provisions of Section 17(a) of the Securities Act of 1933, Section
10(b) of the Securities Exchange
Act of 1934 and Rule 10b-5 promulgated thereunder, the issuer reporting
provision of Section 13(a) of the Exchange Act, and Rules 12b-20, 13a-1 and
13a-13 promulgated under the Exchange Act.
The complaint seeks the entry of a preliminary and permanent injunction
against all defendants including F10 and its former officers, Jon H. Marple and
Mary E. Blake, including the return of "ill gotten" gains, and seeks asset
freezes against 16 of the defendants including F10 and its former officers.
F10's bank account with a balance of approximately $60,000 is currently
frozen.
The court has scheduled a December 2003 hearing on the SEC's
application for a preliminary injunction.
F10 believes that it has meritorious defenses to the complaint and
intends to vigorously defend the action.
Item 2 - Changes in Securities
Recent Sales of Unregistered Securities
F10 made the following sales of unregistered securities during the quarter ended
September 30, 2003:
Common Stock
(a) In August 2003, F10 issued 15,000 shares of its restricted common stock to
one entity as part of a payment of a purchase option for an interest in an
oil well. The stock was issued at a price of $.10 per share. F10 relied on
the exemption under Section 4(2) of the Securities Act of 1933, as amended.
(b) In September 2003, F10 issued 200,000 shares of its restricted common stock
to Charles H. Blake, Jr. as part of his compensation to assume the duties
as President of F10. The stock was issued at a price of $.10 per share. F10
relied on the exemption under Section 4(2) of the Securities Act of 1933,
as amended.
(c) In September 2003, F10 issued 250,000 shares of its restricted common stock
to Max Campbell, an officer and director, to compensate him to assume the
duties of President of Capital Market Mentors, Inc., a wholly owned
subsidiary ("CMM"). Mr. Campbell is to resume the sales of the CMM stock
tutorials. The stock was issued at a price of $.10 per share. F10 relied on
the exemption under Section 4(2) of the Securities Act of 1933, as amended.
Exemption from registration under the Securities Act of 1933 ("Act") is claimed
for the sale of these securities in reliance upon the exemption offered by
Section 4(2) of the Act, which exempts transactions by issuers not involving a
public offering. Use of this exemption is based on the following facts:
14
* Neither F10 or any person acting on behalf of F10 solicited any offer
to buy or sell the securities by any form of general solicitation or
advertising;
* The purchasers represented that they were acquiring the securities as
a principal for their own account for investment purposes only and
without a view towards distribution or reselling these securities
unless pursuant to an effective registration statement or exemption
from registration in compliance with federal or state securities laws;
and
* The securities were issued with the understanding that they may only
be disposed of pursuant to an effective registration statement or
exemption from registration in compliance with federal or state
securities laws.
In December 2002, F10 issued 10,000,000 shares of its restricted common stock to
the Sukumo Group. The stock was delivered to an escrow agent to be disbursed at
the request of the Sukumo Group and F10 under the terms of an Offshore Stock
Purchase Agreement and subject to a Finders Fee Agreement with Feng Shui
Consulting (later amended to change the Finders Fee Agreement to be between F10
and Nu Way Consulting). During the quarter ended September 30, 2003, 1,632,324
shares were distributed under the terms of the agreements. The Agreement with
the Sukumo Group was cancelled on September 5, 2003. Through September 30, 2003,
a total of 4,517,691 shares of the stock were distributed and the remaining
shares (5,482,309) have been returned to F10. During the quarter ended September
30, 2003, F10 received net proceeds of $318,169, or $0.195 per share. Since the
beginning of the offering, F10 has received net proceeds of $738,837, or $0.164
per share. The terms of the Offshore Stock Purchase Agreement call for Sukumo to
pay a price of 12.5% of the bid price of the F10 common stock on the date that
Sukumo notifies the escrow agent of its intent to purchase the stock. Under the
terms of the Finders Fee Agreement, NuWay receives 17.5% of the current bid
price on the F10 stock. F10 is also required to pay a finders fee of 10% of the
net amount that it receives to Jon Richard Marple, under the terms of his
consulting agreement with F10 dated February 1, 2002. Jon Richard Marple is the
son of a director of F10 and provided F10 with an introduction to the parties
who arranged this financing. F10 has not received a complete accounting of the
Sukumo transaction so the exact amount of finder's fees to NuWay cannot be
determined. Additionally, due to the lack of proper accounting by the escrow
agent, F10 is not sure if it is due additional funds under the terms of the
Sukumo Agreement. F10 paid $30,894 to Jon Richard Marple under the terms of his
consulting agreement.
The Offshore Stock Purchase Agreement qualified for exemption under Regulation S
as Sukumo represented to F10 that: (i) Sukumo is not a "U.S. Person" as that
term is defined in Rule 902 of Regulation S; (ii) Sukumo is not an affiliate of
F10; (iii) At the time of the transaction, Sukumo was outside the United States
and no offer to purchase the shares was made in the United States; (iv) All
offers and subsequent sales of the shares shall not be made to U.S. persons
unless the shares are registered or a valid exemption from registration can be
relied on under applicable U.S. state and federal securities laws; (v) Sukumo is
not a distributor or dealer; (vi) the shares were not acquired by Sukumo for any
U.S. Person nor were they subject to any pre-arranged agreement with Sukumo and
a purchaser located in the United States or a purchaser which is a U.S. person,
and that the shares are not and will not be part of a plan or scheme to evade
the registration provisions of the Act; (vii) all offering documents received by
Sukumo include statements to the effect that the shares have not been registered
under the Securities Act of 1933 and may not be offered or sold in the United
States or to U.S. Persons (other than distributors as defined in Regulation S)
during the Restricted Period unless the shares are registered under the
Securities Act of 1933 or an exemption from registration is available.
15
Item 3 - Defaults Upon Senior Securities
As of September 30, 2003, F10 was in default on notes with a principal
balance totaling $275,000.
Item 4 - Submission of Matters to a Vote of Security Holders
None.
Item 5 - Other Information
On July 23, 2003, Jon H. Marple resigned as the F10's Chief Executive
Officer due to his personal health concerns. Mary E. Blake also resigned in her
capacity as President of F10. On this same date, the Board of Directors
appointed Charles H. Blake, Jr. to the position of President of F10. Charles H.
Blake, Jr. is the brother of Mary E. Blake.
On August 13, 2003, Jon H. Marple resigned as a director of F10 and was
replaced by Charles H. Blake, Jr.
On August 15, Mary E. Blake resigned as a director of F10 and was replaced
by Max Campell.
On October 7, 2003, Charles H. Blake, Jr. resigned as President and
director of F10. He was replaced by Michael Meservy.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 31.1 Certification of the Chief Executive Officer of F10 Oil &
Gas Properties, Inc. pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 31.2 Certification of the Chief Financial Officer of F10 Oil &
Gas Properties, Inc. pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 32.1 Certification of the Chief Executive Officer and Chief
Financial Officer of F10 Oil & Gas Properties, Inc. pursuant to
Section 906 of the Sarbanes Oxley Act of 2002
(b) Reports on Form 8-K
None.
Documents Incorporated by Reference
None.
SIGNATURE
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.
F10 Oil & Gas Properties, Inc.
Dated: November 19, 2003 /s/ Michael Meservy_____________
Chief Executive Officer and
Chief Financial Officer
16
Exhibit 31.1 CEO Certification
I, Michael Meservy, certify that:
1. I have reviewed this Form 10-QSB of F10 Oil & Gas Properties, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the small business
issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and
have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
small business issuer, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during
the period in which this report is being prepared;
(b) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based
on such evaluation; and
(c) Disclosed in this report any change in the small business
issuer's internal control over financial reporting that occurred
during the small business issuer's most recent fiscal quarter (the
small business issuer's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely
to materially affect, the small business issuer's internal control
over financial reporting; and
5. The small business issuer's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the small business issuer's auditors and the audit committee of
the small business issuer's board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the small business
issuer's ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the small business
issuer's internal control over financial reporting.
Date: November 19, 2003
/s/ Michael Meservy
Michael Meservy
Chief Executive Officer
17
Exhibit 31.2 CFO Certification
I, Michael Meservy, certify that:
1. I have reviewed this Form 10-QSB of F10 Oil & Gas Properties, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the small business
issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and
have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
small business issuer, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during
the period in which this report is being prepared;
(b) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based
on such evaluation; and
(c) Disclosed in this report any change in the small business
issuer's internal control over financial reporting that occurred
during the small business issuer's most recent fiscal quarter (the
small business issuer's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely
to materially affect, the small business issuer's internal control
over financial reporting; and
5. The small business issuer's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the small business issuer's auditors and the audit committee of
the small business issuer's board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the small business
issuer's ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the small business
issuer's internal control over financial reporting.
Date: November 19, 2003
/s/ Michael Meservy
Michael Meservy
Chief Financial Officer
18
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-QSB of F10 Oil & Gas
Properties, Inc. (the "Company") for the quarter ended September 30, 2003 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), the undersigned Michael Meservy, Chief Executive Officer and Chief
Financial Officer of F10 Oil & Gas Properties, Inc., certifies, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Dated: November 19, 2003
/s/ Michael Meservy
Michael Meservy
Chief Executive Officer
/s/ Michael Meservy
Michael Meservy
Chief Financial Officer
19