SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by rule
14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
PIONEER OIL AND GAS
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(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filling Proxy Statement if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2),
or Item 22(a)(2) of Schedule 14A.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-
11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined).
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[ ] Fee paid previously by written preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule, or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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PIONEER OIL AND GAS
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders:
Notice is hereby given that the Annual Meeting of Shareholders of Pioneer Oil
and Gas (the "Company") will be held on Wednesday, July 28, 2004, starting at
10:00 A.M., Mountain Daylight Time, at the Company's office, 1206 W. South
Jordan Parkway, Unit B, South Jordan, Utah 84095. The following matters are on
the agenda for the Meeting:
1. To Elect the Board of Directors;
2. To ratify the appointment of Jones Simkins LLP ("Jones"), as independent
auditors for the current fiscal year;
3. To transact any other business matters that may properly come before the
meeting or any adjournment or postponement thereof.
The Directors have fixed the close of business on June 11th, 2004, as the record
date for the determination of shareholders entitled to notice of and to vote at
the meeting or any adjournment or postponement thereof. A complete list of such
shareholders will be available at the corporate office of the Company during
normal business hours and shall be open to the examination of any such
shareholder for any purpose relevant to the Meeting.
A record of the Company's activities during the year ending September 30, 2003
and financial statements for that year, are in the Company's annual report to
shareholders, which this year is contained within the proxy statement that
accompanies this notice.
You are cordially invited to attend the Meeting. Any shareholder that does not
expect to attend the Meeting in person is requested to complete, date, and sign
the enclosed form of Proxy and return it promptly to Pioneer Oil and Gas. Thank
you for your cooperation.
BY ORDER OF THE BOARD OF DIRECTORS
DON J. COLTON, Chairman of the Board of Directors, and President
YOUR VOTE IS IMPORTANT TO PIONEER OIL AND GAS. EVEN IF YOU EXPECT TO ATTEND THE
ANNUAL MEETING, WE URGE YOU TO COMPLETE, DATE, AND SIGN THE ENCLOSED PROXY AND
RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED. COMPLETING THE ENCLOSED PROXY WILL
NOT PREVENT YOU FROM VOTING YOUR SHARES IN PERSON IF YOU DO ATTEND THE MEETING.
PIONEER OIL AND GAS
1206 W. South Jordan Parkway
Unit B
South Jordan, Utah 84095-5512
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PROXY STATEMENT
Annual Meeting of Stockholders
To Be Held on July 28, 2004
----------------------------
GENERAL INFORMATION
This Proxy Statement is being furnished to the stockholders of Pioneer Oil and
Gas (the "Company"), in connection with the solicitation of proxies on behalf of
the Board of Directors of Pioneer Oil and Gas (the "Directors") for use at the
Company's 2004 Annual Meeting of Stockholders and any and all adjournments or
continuations thereof (the "Meeting"), to be held on Wednesday, July 28th, 2004
for the purposes set forth under the next paragraph. These materials will be
first mailed to stockholders on or about June 11th, 2004.
PURPOSE OF ANNUAL MEETING
At the Meeting, stockholders will be asked: (i) to elect a Board of Directors to
serve until the next annual meeting of the stockholders, or until their
successors are duly elected and qualified; (ii) to ratify the selection by the
Directors of Jones as independent auditors of the Company for the fiscal year
ending September 30th, 2003 ("Fiscal 2003"); and (iii) to transact such other
business as may properly come before the Meeting or any adjournment or
postponement thereof.
QUORUM, VOTING RIGHTS AND OTHER MATTERS
The Company presently has one class of capital stock, common stock, $.001 par
value, of which 7,913,519 shares were issued and outstanding at the close of
business on June 11th, 2004. Only shareholders of record at the close of
business on June 11, 2004 will be entitled to notice of and to vote at the
meeting. The presence at the meeting in person or by proxy of a majority of the
shares entitled to a vote shall constitute a quorum for the transaction of
business. All voting is non-cumulative.
The Directors know of no other matters, which are likely to be brought before
the Meeting. If any other matters properly come before the Meeting, however, the
person named in the enclosed proxy, or that person's duly constituted substitute
acting at the Meeting, will be authorized to vote or otherwise act thereon in
accordance with such matters. If the enclosed proxy is properly executed and
returned prior to voting at the Meeting, the shares represented thereby will be
voted in accordance with the instructions marked thereon. In the absence of
instructions, executed proxies will be voted "FOR" the items listed in the
Notice. The Directors recommend a vote "FOR" each of the proposals. Directors
are elected by a plurality of the common stock represented at the meeting.
In accordance with Utah State law, certain corporate actions, generally, may
create shareholder's rights of dissent and entitlement to payment of the fair
market value of shares held. However, none of the proposals at the Annual
Meeting creates such shareholder dissenters' rights.
Any stockholder executing a proxy has the power to revoke such proxy at any time
prior to its exercise. A proxy may be revoked prior to exercise by (i) filing
with the Company a written revocation of the proxy, (ii) appearing at the
Meeting and casting a vote contrary to that indicated on the proxy, or (iii)
submitting a duly executed proxy bearing a latter date.
The cost of preparing, printing, assembling and mailing this Proxy Statement and
other material furnished to stockholders in connection with the solicitation of
proxies will be borne by the Company. In addition to the solicitation of proxies
by use of mails, officers, directors, employees and agents of the Company may
solicit proxies by written communication, telephone or personal call. Such
persons are to receive no special compensation for any solicitation activities.
The Company will reimburse banks, brokers and other persons holding common stock
in their names, or those of their nominees, for their expenses in forwarding
proxy solicitation materials to beneficial owners of common stock.
The Company will appoint one or more inspectors of election to act at the
Meeting and report the results. Prior to the Meeting, each inspector will sign
an oath to perform his duties in an impartial manner and according to the best
of his ability. Inspectors will ascertain the number of shares outstanding and
the voting power of each, determine the shares represented at the Meeting and
the validity of proxies and ballots, count all votes and ballots, and perform
certain other duties as required by law. Inspectors will tabulate the number of
votes cast for or withheld in the election of directors, and the number of votes
cast for or against all other proposals, including abstentions and other
non-votes.
The required quorum necessary to transact business at the Meeting is a majority
of the issued common stock outstanding on the record date. If a quorum is
present, a plurality of the votes cast for directors will determine the
directors elected and the approval of each proposal at the Meeting requires the
affirmative vote of a majority of the common stock actually voted on such
proposal. Abstentions and broker non-votes will be counted to determine if a
quorum is present but will not otherwise affect the voting on any proposal.
PROPOSAL ONE: ELECTION OF DIRECTORS
A Board of three directors is to be elected at the Meeting. The nominees are the
present directors, all of whom are standing for re-election. No director nominee
has declined the nomination or is unable or unfit to serve. Under the Bylaws of
the Company, the Company must have a minimum of three and a maximum of seven
directors. Each director serves until the next annual shareholders meeting or
until a successor is duly elected. Don J. Colton and Gregg B. Colton are
brothers and John O. Anderson is their uncle. The following table sets forth
information about the nominees.
Name Age Position(s) Held Director Since
---- --- ------------------------- -----------------
Don J. Colton 57 Director, CEO, President October 1980
and Treasurer
Gregg B. Colton 51 Director, Vice President October 1980
and Secretary
John O. Anderson 61 Director January 1988
Don J. Colton serves as the Company's President, Treasurer and Chairman of its
Board of Directors. Since the Company's inception in October 1980, Mr. Colton
has served as the Company's President and has been involved in all aspects of
the business including exploration, acquisition and development of producing
properties. From 1979 to 1981, Mr. Colton was Chief Financial Officer and a
member of the Board of Directors of Drilling Research Laboratory in Salt Lake
City, Utah. The Drilling Research Laboratory is a subsidiary of Terra Tek, Inc.
and prior to his involvement with the Drilling Research Laboratory, Mr. Colton
was Manager of Special Projects for Terra Tek. Mr. Colton received a BS in
Physics from Brigham Young University in 1970 and a Master of Business
Administration from the University of Utah in 1974.
Gregg B. Colton serves as the Company's Vice President, Secretary, General
Counsel and a member of the Board of Directors. Mr. Colton has been employed
with the Company since it actually commenced business in 1981. Mr. Colton is
involved in handling the contracts, sales of oil and gas products and legal
problems of the Company along with the day to day decision making for the
Company with the Company's President. From 1981 to 1984, Mr. Colton was also a
partner in the law firm of Cannon, Hansen & Wilkinson. Mr. Colton is a member of
the Utah State Bar and a real estate broker. He is also a member of the
Corporate Counsel and Business Law sections for the Utah State Bar. Mr. Colton
earned his BA from the University of Utah in 1976 and a Juris Doctor and a
Master of Business Administration from Brigham Young University in 1981.
John O. Anderson serves as the Company's Office Manager along with being a
member of the Board of Directors. Mr. Anderson as Office Manager handles the day
to day accounting for the Company along with handling the procurement of office
supplies. The Company has employed Mr. Anderson since 1981 and prior to joining
the Company he worked in land investments. Mr. Anderson received his BS in
Zoology in 1968 from the University of California.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE MEMBERS OF
THE BOARD OF DIRECTORS
BOARD OF DIRECTORS
The Board of Directors held a total of one Board of Directors meeting during the
fiscal year ending September 30, 2003. All directors attended all of the
meetings of the Board of Directors. The Board of Directors does not have a
standing audit, nominating or compensation committee or a committee that
performs similar functions.
The Company's directors hold office until the end of their respective terms or
until their successors have been duly elected and qualified. Presently, the
Board of Directors do not receive any cash compensation for serving on the
Board. However, each member of the Board of Directors for serving on the Board
has received 60,000 options under the Company's incentive stock option plan to
acquire the Company's common stock at a price of $.20 per share until August 9,
2011.
At the annual shareholders meeting in 1991, the shareholders approved an
amendment to the Company's Articles of Incorporation, limiting the personal
liability of directors to the Company and its shareholders, to the extent
allowed by Utah law. In effect, the shareholders approved the adoption of
statutory provisions, which permit a Utah corporation to eliminate the personal
liability of directors for monetary damages for breach of fiduciary duty.
The Company's executive officers are appointed by the Board of Directors and
serve at the discretion of the Board.
EXECUTIVE OFFICERS
The following table sets forth (i) the names of the executive officers, (ii)
their ages as of the Record Date and (iii) the capacities in which they serve
the Company:
Name Age Position(s) Officer Since
--------------- ---- ------------------------ -------------
Don J. Colton 57 President/Treasurer 1980
Gregg B. Colton 51 Vice President/Secretary 1980
Note: Don J. Colton and Gregg B. Colton are brothers.
Section 16(a) of the Securities and Exchange Act of 1934 requires officers,
directors, and persons who own more than ten percent of a registered class of a
company's equity securities to file initial reports of beneficial ownership and
to report changes in ownership of those securities with the Securities and
Exchange Commission. They are also required to furnish the Company with copies
of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the applicable copies of
the forms required to be filed with the SEC that have been furnished to the
Company, the Company has determined that the pertinent officers, directors and
principal shareholders have complied with all applicable Section 16(a)
requirements since the Company became subject to Securities Exchange Act of
1934. The Company became subject to the Securities Exchange Act of 1934 on
February 26th, 2000.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
The following Summary Compensation Table sets forth all cash compensation paid,
distributed or accrued for services, including salary and bonus amounts rendered
in all capacities for the Company's CEO during the fiscal years ended, September
30, 2003, 2002, and 2001. All other tables required to be reported have been
omitted as there has been no compensation awarded to, earned by or paid to any
of the executives of the Company that is required to be reported other than what
is stated below:
SUMMARY COMPENSATION TABLE
Name and Amount of Fiscal
Principal Position Compensation Year Ended
------------------ ------------ -----------
Don J. Colton, CEO $90,504(1) 2003
Don J. Colton, CEO $90,504(1) 2002
Don J. Colton, CEO $90,504(1) 2001
(1) The amount of compensation included in the table above for each
fiscal year does not include amounts paid by the Company for the
Company's Employee Stock Ownership Plan. Under the Employee Stock
Ownership Plan 15% of the employees compensation for salary or bonuses
is paid on behalf of the employee for Company stock in the Company's
Employee Stock Ownership Plan for fiscal year 2003. All full-time
employees of the Company participate in the Employee Stock Ownership
Plan on the same terms and conditions as management. For the fiscal
years shown above 15% of the compensation amount was paid towards the
Employee Stock Ownership Plan in the form of Company stock for 2003
and 10% in fiscal years 2002 and 2001.
The Board of Directors reviews and sets compensation levels of the executive
officers of the Company by evaluating their respective performance in light of a
number of factors, including the Board's assessment of the performance of the
Company, as well as the range of compensation paid by the Company in comparison
to the range of compensation paid by similar oil and gas companies in the
western United States. The board weighs other factors, such as the officer's
performance relative to the continued acquisition of favorable properties, and
relative to the Company's financial performance.
The Company's executive compensation policy continues to look at three variable
elements: base salary, stock awards and option grants. The policy factors, which
determine the setting of these compensation elements, are largely aimed at
attracting and retaining executives considered essential to the Company's
long-term success.
The granting of stock and/or options is designed as an incentive to increasingly
focus management's interests in closer alignment with interests of shareholders.
The Company's executive compensation policy seeks to engender committed
leadership and strategic management to favorably posture the Company for
continued growth, stability and strength of shareholder equity. All options
granted currently to directors, officers and employees of the Company are
pursuant to an incentive stock option plan approved by shareholders of the
Company at the last annual meeting of the shareholders.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock by each person or group that is known by
the Company to be the beneficial owner of more than five percent of its
outstanding Common Stock, each director of the Company, each person named in the
Summary Compensation Table, and all directors and executive officers of the
Company as a group as September 30, 2002. Unless otherwise indicated, the
Company believes that the persons named in the table below, based on information
furnished by such owners, have sole voting and investment power with respect to
the Common Stock beneficially owned by them, where applicable.
Title of Name and Address of Amount and Nature Percent
Class Beneficial Owner of Beneficial Owner of Class
Common Don J. Colton 856,905(1) 10.3%
2172 E Gambel Oak Drive
Sandy, Utah 84092
Common Gregg B. Colton 870,667(1) 10.4%
10026 Ridge Gate Circle
Sandy, Utah 84092
Common John O. Anderson 522,615(1) 6.3%
7462 S Parkridge Circle
Salt Lake City, Utah 84121
Common Pioneer Employee Stock 1,133,712(2) 13.6%
Ownership Plan
1206 W. South Jordan Parkway
Unit B
South Jordan, Utah 84095
All Directors and Officers as a Group
(3 Persons) 2,250,187 27.0%
(1) Includes currently exercisable options to purchase common stock in
the Company as long as the person is serving as a director and
employee of the Company. Each of the persons listed under this
footnote have options to purchase 120,000 shares of the Company's
Common Stock.
(2) Persons listed above have their vested shares under the Pioneer
Employee Stock Ownership Plan included under their name. Don J. Colton
and Gregg B. Colton as Trustees of the Pioneer Employee Stock
Ownership Plan have the right to vote all the shares of the Plan at
any shareholder meeting of the Company.
The Company currently has no arrangements, which may result in a change of
control.
TRANSACTIONS WITH RELATED PARTIES
The Board of Directors approved several years ago a resolution to allow
employees of the Company to purchase 25% of any oil and gas producing property
acquired by the Company at the same time as the Company acquires the property.
The resolution required that the employees pay for 25% of the cost of the oil
and gas properties at the same time the Company purchased the properties. In the
event, the Company is unable to fund the total cost of any producing properties
the employees of the Company may purchase the amount the Company is unable to
fund even if it exceeds 25%. The employees also have the right to acquire 25% of
any non-producing oil and gas leases acquired by the Company on similar terms as
those for producing properties.
The Company also leases office space that is owned by the Board of Directors.
The office space is leased to the Company on terms reasonable for the same kind
of office space in the area that it is located. The office space is 1,950 square
feet with an unfinished basement of approximately 975 square feet.
PROPOSAL TWO: RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Jones Simkins LLP served as the independent accountants for the Company for the
year ended September 30, 2003. There have been no disagreements during the three
fiscal years ended September 30, 2003, 2002 and 2001, or at any other time with
Company's present or former independent public accountants. Management of the
Company intends to continue with its selection of Jones for the fiscal year
ending September 30, 2004. A representative of Jones is not expected to be
present at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF JONES SIMKINS LLP AS THE COMPANY'S ACCOUNTANTS.
PROPOSAL THREE: OTHER BUSINESS
The Company has not received any shareholder proposals for this Annual Meeting.
The Board of Directors knows of no other business, other than stated in this
proxy statement, to be presented for the action at the Annual Meeting. If other
business is properly presented at the Meeting, however, which was not known, or
did not become known to the Board a reasonable time before the solicitation,
then the person designated in the enclosed Proxy will vote, or refrain from
voting, in accordance with his best judgment.
STOCKHOLDER PROPOSALS
Stockholders may submit proposals on matters appropriate for stockholder action
at the Company's annual meetings consistent with regulations adopted by the SEC.
For such proposals to be considered for inclusion in the proxy statement and
form of proxy relating to the 2005 annual meeting, they must be received by the
Company not later than September 30, 2004 or such later date as the Company may
specify in its SEC filings. Such proposals should be addressed to the Company's
office at 1206 W. South Jordan Parkway, Unit B, South Jordan, Utah 84095-5512
OTHER MATTERS
Management does not intend to present, and has no information as of the date of
preparation of this Proxy Statement that others will present, any business at
the Meeting other than business pertaining to matters required to be set forth
in the Notice of Annual Meeting and Proxy Statement. However, if other matters
requiring the vote of the stockholders properly come before the Meeting, it is
the intention of the persons named in the enclosed proxy to vote the proxies
held by them in accordance with their best judgement on such matters.
DESCRIPTION OF BUSINESS
Pioneer Oil and Gas (the "Company") was organized on October 16, 1980 under the
laws of the State of Utah. The Company's principal place of business is located
at 1206 West South Jordan Parkway, Unit B, South Jordan, Utah 84095-5512. The
Company's telephone number is (801) 566-3000 and the Company's fax number is
(801) 446-5500. The Company has primarily been engaged in the acquisition and
exploration of oil and gas properties in Utah, Wyoming, Colorado and Nevada.
The Company has focused its efforts over the years in acquiring oil and gas
properties from other companies, selling producing wells and acquiring new oil
and gas leases for the purpose of exploring for oil and gas. Leases have also
been acquired over the years for the purpose of reselling them at a profit to
other oil and gas companies.
Most of the Company's operated oil and gas properties were acquired from large
oil companies selling properties they considered to be marginal producers. The
Company has found that it can operate these properties at a profit. Presently,
the Company operates 9 producing oil and gas wells in Utah and Wyoming.
The Company also owns an interest in several non-operated oil and gas wells and
overriding royalty interests in oil and gas wells located in Utah, Colorado,
Texas and Wyoming. An overriding royalty interest, is an interest in a well that
receives a percentage of the production from a well without paying any operation
expenses.
The Company operates in a highly competitive industry wherein many companies are
competing for the same finite resources as the Company.
The Company over the last few years has focused most of its exploration efforts
in the Rocky Mountain area, and in acquiring leasehold positions in trend areas
of existing production. Prior to leasing an area a geological review of the
prospective area is made by the Company's staff to determine the potential for
oil and gas. If an area is determined to have promise the Company will attempt
to acquire oil and gas leases over the prospective area. The Company will then
acquire geophysical data (generally seismic and gravity data) to further
evaluate the area. After the evaluation of the geophysical data, if the area
appears to contain significant accumulations of oil and gas in the Company's
opinion for the area, the Company will market a drilling program to outside
investors covering the Company's leases or sell the leases with the Company
retaining an overriding royalty interest. Significant accumulations cannot be
quantified because it depends on many factors such as how much it costs to drill
and complete wells in a certain area, how close the wells are to pipelines, what
the price of oil or gas is, how accessible the area is, whether the project is a
developmental or wildcat project, what the cost of oil and gas leases are in an
area, the type of return investors are seeking at that time in the different
exploration areas, and many other geological, geophysical and other
considerations.
When the Company markets a drilling program it sells a portion of its oil and
gas leases over the prospect area along with obtaining a drilling commitment
from the parties purchasing the leases to drill a well on the prospect area. A
drilling program will generally allow the Company to recoup its investment in
the area with the Company also retaining an ongoing interest in new wells to be
drilled in the area.
The Company markets its drilling programs to other industry partners. Drilling
programs have been marketed by placing ads in industry journals, attending trade
shows and by traveling to the offices of prospective partners. In the past, the
Company has sold drilling programs to major oil companies and large independents
and occasionally to individuals.
Leases acquired for resale have been acquired in areas determined to be
prospective by the Company's staff. An area is determined to be prospective
based on a geological review of the area, drilling in the area and review of the
Company's geophysical data if available. Usually resale leases are acquired for
the purpose of selling at a profit along with the Company retaining an
overriding royalty interest in the leases sold.
RECENT DEVELOPMENTS:
Since September 1999, the Company has been focusing on obtaining prospects for
the exploration of oil and gas and continuing the operations of its current
producing oil and gas properties. During the last fiscal year ended September
30th, 2003, the Company has sold approximately two-thirds of its overpressured
gas play leaving 13,189.16 acres left to sell in the play. The Company is
currently marketing the remaining acreage to outside industry partners and
individuals for development. The prospect could contain significant natural gas
reserves.
The Company has also sold its Emigrant Gap Prospect in Natrona County, Wyoming,
which it intends to drill prior to December 31, 2004. The Company is presently
marketing a coal bed methane prospect in Carbon County, Wyoming, the Yankee Mine
West Prospect in White Pine County Nevada and an oil prospect in Nye County,
Nevada. During the last year the Company has decreased the amount of undeveloped
oil and gas leases it holds from 100,815 gross acres on 9/30/02 to 59,018 gross
acres on 9/30/03 primarily through the sale of its overpressurred gas acreage.
The Company has been involved in a 3D seismic project in Texas that will
continue to cause the Company to expend funds during the current year in
prospective drilling on prospects identified on 3D seismic. The Company owns a
1.65% working interest in the 3D seismic venture in Texas and already has
drilled four wells on the 3D seismic venture. One of the wells appears to be a
producer, two are dry holes and the other appears to be productive but will need
to be redrilled.
DESCRIPTION OF SECURITIES.
Qualification. The following statements constitute brief summaries of the
Company's Articles of Incorporation and Bylaws. Such summaries do not purport to
be fully complete and are qualified in their entirety by reference to the full
text of the Articles of Incorporation and Bylaws of the Company.
Common Stock. The Company's Articles of Incorporation authorize it to issue up
to 50,000,000 (fifty million) Shares of its Common Stock, which carry a par
value of $0.001 per Share.
Liquidation Rights. Upon liquidation or dissolution, each outstanding Common
Share will be entitled to share equally in the assets of the Company legally
available for the distribution to shareholders after the payment of all debts
and other liabilities.
Dividend Rights. There are no limitations or restrictions upon the rights of the
Board of Directors to declare dividends out of any funds legally available
therefor. The Company has not paid dividends to date and it is not anticipated
that any dividends will be paid in the foreseeable future. The Board of
Directors initially will follow a policy of retaining earnings, if any, to
finance the future growth of the Company. Accordingly, future dividends, if any,
will depend upon, among other considerations, the Company's need for working
capital and its financial conditions at the time.
Voting Rights. Holders of Common Shares of the Company are entitled to cast one
vote for each share held at all shareholders meetings for all purposes.
Other Rights. Common Shares are not redeemable, have no conversion rights and
carry no preemptive or other rights to subscribe to or purchase additional
Common Shares in the event of a subsequent offering.
Transfer Agent. The Company's transfer agent is Atlas Stock Transfer whose
address is 5899 South State Street, Murray, Utah 84107. The phone number of
Atlas Stock Transfer is (801) 266-7151.
The Securities and Exchange Commission has adopted Rule 15g-9 which established
the definition of a "penny stock", for the purposes relevant to the Company, as
any equity security that has a market price of less than $5.00 per share, or
with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require: (i) that broker or dealer approve a person's account for
transactions in penny stocks; and, (ii) the broker or dealer receive from the
investor a written agreement to the transaction, setting forth the identity and
quantity of the penny stock to be purchased. In order to approve a person's
account for transactions in penny stocks, the broker or dealer must (i) obtain
financial information and investment experience objectives of the person; and
(ii) make a reasonable determination that the transaction(s) in penny stocks are
suitable for that person and the person has sufficient knowledge and experience
in financial matters to be capable of evaluating the risks of transactions in
penny stocks. The broker or dealer must also deliver, prior to any transaction
in a penny stock, a disclosure schedule prepared by the Commission relating to
the penny stock market, which, in highlighted form, (i) sets forth the basis on
which the broker or dealer made the suitability determination; and (ii) that the
broker or dealer received a signed, written agreement from the investors prior
to the transaction. Disclosure also has to be made about the risks of investing
in penny stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and registered representative,
current quotations for the securities and the rights and remedies available to
an investor in case of fraud in penny stock transaction. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stocks held in the account and information on the limited market in penny
stocks.
MARKET PRICE AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND OTHER
SHAREHOLDER MATTERS.
The Company is listed on the over-the-counter market on the NASDAQ OTC Bulletin
Board. The range of high and low bid information for the shares of the Company's
stock for the last two complete fiscal years, as reported by the OTC Bulletin
Board National Quotation Bureau, is set forth below. Such quotations represent
prices between dealers, do not include retail markup, markdown or commission,
and do not represent actual transactions.
Year Ended September 30, 2003 High Low
First Quarter $.36 $.27
Second Quarter .45 .21
Third Quarter .43 .25
Fourth Quarter .47 .16
Year Ended September 30, 2002 High Low
First Quarter $.17 $.10
Second Quarter .19 .10
Third Quarter .30 .11
Fourth Quarter .26 .15
As of September 30, 2003 the Company had issued and outstanding 7,961,618 common
shares held by approximately 1,120 holders of record.
There have been no cash dividends declared by the Company since its inception.
Further, there are no restrictions that would limit the Company's ability to pay
dividends on its common equity or that would be likely to do so in the future.
The Company has no plans to register any of its securities under the Securities
Act for sale by security holders. There is no public offering of equity and
there is no proposed public offering of equity.
LEGAL PROCEEDINGS.
The Company may become or is subject to investigations, claims, or lawsuits
ensuing out of the conduct of its business, including those related to
environmental safety and health, commercial transactions etc. The Company is
currently not aware of any such items, which it believes could have a material
adverse affect on its financial position.
FINANCIAL AND OTHER INFORMATION
The audited financial statements regarding the Company for the fiscal year ended
September 30, 2002, are presented in the Appendix following the proxy statement.
A summary of selected financial data, and the information contained in the
disclosures entitled " Management's Discussion and Analysis of Financial
Condition and Results of Operations", are presented below.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS -2003 Compared to 2002
Total revenue for fiscal year 2003 was $1,929,279 as compared to total revenue
for fiscal year 2002 of $909,321. The increase in revenue was due primarily to
an increase in natural gas and crude oil prices from fiscal 2002 as compared to
fiscal 2003 and $566,356 in project and lease sales income (including the sale
of two-thirds of the overpressured gas project). Total oil and gas sales
(including royalty revenue) increased from $908,821 to $1,360,985. Average gas
prices increased 103% from $2.01 MCF (2002) to $4.08 MCF (2003). Average oil
prices increased 42 percent from $18.65 per barrel in 2002 to $26.43 per barrel
in 2003.
Project and lease sales income increased from $0 in 2002 to $566,365 in 2003 as
the Company sold two-thirds of its overpressured gas project and a 3500 acre
coalbed methane lease block.
Costs of operations increased from $425,743 to $632,264. This item includes all
well operating expenses and any amounts paid to employees and other interest
owners for their interest in producing properties. Increased disbursements to
interest owners due to higher product prices accounted for most of the increase.
General and administrative costs decreased from $341,089 in fiscal 2002 to
$316,259 in fiscal 2003 due to cost saving measures.
In fiscal 2003 loss on assets sold or abandoned increased from 0 to $355,459.
The write-off of some of the Company's producing assets in Wyoming during fiscal
2003 accounted for the increase along with the sale of the overpressured leases
sold.
The Company's total stockholders' equity increased from $831,103 to $1,034,808.
This increase in shareholder's equity during fiscal 2003 was the result of
positive net income of $177,413 and a decrease in the ESOP stock subscription
receivable of $26,292. Net income increased from a loss of $163,810 in 2002 to
income of $177,413 in 2003.
LIQUIDITY AND CAPITAL RESOURCES
Historically the Company has funded operations primarily from earnings and bank
borrowing. As of September 30, 2003 the Company had working capital of $593,697
and an unused line of credit with Zions Bank for $750,000. This line of credit
is collateralized by all of the companies operated oil and gas properties. The
line of credit bears interest at prime rate plus 1.0%. The line of credit with
Zions Bank matured on December 31, 2001, and was renewed for a two year period
ending December 31, 2003. As of September 30, 2002 and as of September 30, 2003,
the amount on the credit line was $654,158 and $0 respectively.
During fiscal 2003 cash provided in operating activities was $967,385 while cash
used for investing activities was for $32,158. There was a net increase in cash
of $281,069, as cash increased from $90,458 to $371,527. The increase in cash
for operating activities was primarily the result of project and lease sale
income and increased product prices.
OIL AND GAS PROPERTIES
The Company, as of the date of this filing, is the owner of several oil and gas
properties located throughout the Rocky Mountain Region. The Company operates
four properties in Utah, three in Wyoming and one in Colorado. The standardized
measure of discounted future net cash flows (before income taxes) of all the
Company's properties as of September 30, 2003 was $3,416,961.
INCOME TAXES
The Company's present net operating loss carryforward of approximately
$1,988,000 arises primarily from operations for the year ended September 30th,
1997. Carryforwards of net operating losses for years prior to the year ended
September 30th, 1997 were completely used for tax purposes to offset net income
for the year ended September 30th, 1999. The present net operating loss
carry-forward of the Company will begin to expire in the year 2012.
The Company does not anticipate that it will have taxable income during the
carryforward period because of the applicable net operating loss.
THE COMPANY UNDERTAKES TO PROMPTLY FURNISH (WITHOUT CHARGE EXCEPT AS TO THE
EXHIBITS IF REQUESTED THAT INCLUDE ARTICLES OF INCORPORATION, BYLAWS, LETTER
FROM PETROLEUM ENGINEER AND FINANCING AGREEMENTS WITH ZIONS BANK) A COPY OF ITS
FORM 10-KSB FILED PREVIOUSLY WITH THE SECURITIES AND EXCHANGE COMMISSION, TO ANY
SHAREHOLDER OF RECORD UPON WRITTEN REQUEST, WHICH SHALL ALSO INCLUDE A GOOD
FAITH REPRESENTATION THAT, AS OF JUNE 11TH, 2003, THE PERSON MAKING THE REQUEST
WAS THE BENEFICIAL OWNER OF COMMON STOCK OF THE COMPANY ENTITLED TO VOTE AT THE
ANNUAL MEETING. The Form 10-KSB filed by the Company with the SEC can be viewed
in its entirety at Securities and Exchange website www.sec.gov by searching the
Edgar Archives with the keywords "Pioneer Oil and Gas".
BY ORDER OF THE BOARD OF DIRECTORS:
By: Don J. Colton
Chairman of the Board of Directors,
and President
PIONEER OIL AND GAS
PIONEER OIL AND GAS
FINANCIAL STATEMENTS
September 30, 2003 and 2002
F-1
PIONEER OIL AND GAS
FINANCIAL STATEMENTS
September 30, 2003 and 2002
INDEX
Page
Independent Auditors' Report F-2
Statements of Operations F-3
Balance Sheets F-4
Statements of Stockholders Equity F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7
Supplementary Schedules on Oil and Gas Operations F-15
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of Pioneer Oil and Gas
We have audited the accompanying balance sheets of Pioneer Oil and Gas as of
September 30, 2003 and 2002, and the related statements of operations,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pioneer Oil and Gas as of
September 30, 2003 and 2002, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
JONES SIMKINS LLP
Logan, Utah
November 21, 2003
F-2
PIONEER OIL AND GAS
STATEMENTS OF OPERATIONS
Years Ended September 30, 2003 and 2002
2003 2002
------------- -------------
Revenue:
Oil and gas sales $ 963,244 656,344
Royalty revenue 397,741 252,477
Operational reimbursements 1,929 500
Project and lease sales income 566,365 -
------------- -------------
1,929,279 909,321
------------- -------------
Costs and expenses:
Cost of operations 632,264 425,743
General and administrative expenses 316,259 341,089
Exploration costs 248,753 183,393
Lease rentals 57,395 38,420
Depreciation, depletion and amortization 141,019 88,989
------------- -------------
1,395,690 1,077,634
------------- -------------
Income (loss) from operations 533,589 (168,313)
------------- -------------
Other income (expense):
Loss on assets sold or abandoned (355,459) -
Interest income 15,518 16,933
Interest expense (23,476) (25,847)
Other 7,241 13,417
------------- -------------
(356,176) 4,503
------------- -------------
Income (loss) before provision
for income taxes 177,413 (163,810)
Provision for income taxes - -
------------- -------------
Net income (loss) $ 177,413 (163,810)
============= =============
Net income (loss) per common share - basic and diluted $ .02 (.02)
============= =============
Weighted average common shares - basic and diluted 7,962,000 7,964,000
============= =============
F-3
September 30, 2003 and 2002
2003 2002
------------- -------------
Assets
Current assets:
Cash $ 371,527 90,458
Accounts receivable 149,793 121,173
Resale leases, at lower of cost or market 219,677 527,808
------------- -------------
Total current assets 740,997 739,439
Property and equipment, net 438,881 903,201
Other assets 2,230 2,000
------------- -------------
$ 1,182,108 1,644,640
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 122,093 128,427
Accrued expenses 25,207 30,952
------------- -------------
Total current liabilities 147,300 159,379
------------- -------------
Note payable - 654,158
------------- -------------
Commitments and contingencies - -
Stockholders' equity:
Common stock, par value $.001 per share,
50,000,000 shares authorized; 7,961,618
shares issued and outstanding 7,961 7,961
Additional paid-in capital 2,495,292 2,495,292
Stock subscription receivable (231,927) (258,219)
Accumulated deficit (1,236,518) (1,413,931)
------------- -------------
Total stockholders' equity 1,034,808 831,103
------------- -------------
$ 1,182,108 1,644,640
============= =============
F-4
PIONEER OIL AND GAS
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended September 30, 2003 and 2002
Additional Stock
Common Stock Paid-in Subscription Accumulated
---------------------------
Shares Amount Capital Receivable Deficit Total
-------------- ------------ --------------- ---------------- ------------------ --------------
Balance at
October 1, 2001 7,986,618 $ 7,986 $ 2,497,887 $ (269,800) $ (1,250,121) $ 985,952
Payments on stock
subscription receivable - - - 11,581 - 11,581
Purchase and retirement
of common stock (25,000) (25) (2,595) - - (2,620)
Net loss - - - - (163,810) (163,810)
--------- ---------- ------------- ------------- --------------- -------------
Balance at
September 30, 2002 7,961,618 7,961 2,495,292 (258,219) (1,413,931) 831,103
Payments on stock
subscription receivable - - - 26,292 - 26,292
Net income - - - - 177,413 177,413
--------- ---------- ------------- ------------- --------------- -------------
Balance at
September 30, 2003 7,961,618 $ 7,961 $ 2,495,292 $ (231,927) $ (1,236,518) $ 1,034,808
========= ========== ============= ============= =============== =============
F-5
PIONEER OIL AND GAS
STATEMENTS OF CASH FLOWS
Years Ended September 30, 2003 and 2002
2003 2002
-------------- --------------
Cash flows from operating activities:
Net income (loss) $ 177,413 (163,810)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Loss on assets sold or abandoned 355,459 -
Depreciation, depletion and amortization 141,019 88,989
Employee benefit plan expense 41,396 27,597
Interest income (15,104) (16,016)
(Increase) decrease in:
Accounts receivable (28,620) (13,782)
Resale leases 308,131 (128,780)
Other assets (230) -
Increase (decrease) in:
Accounts payable (6,334) 6,631
Accrued expenses (5,745) 2,079
-------------- --------------
Net cash provided by (used in) operating activities 967,385 (197,092)
-------------- --------------
Cash flows from investing activities:
Acquisition of property and equipment (32,158) (272,551)
-------------- --------------
Net cash used in investing activities (32,158) (272,551)
-------------- --------------
Cash flow from financing activities:
Increase (decrease) in note payable (654,158) 559,158
Purchase of common stock - (2,620)
-------------- --------------
Net cash provided by (used in) financing activities (654,158) 556,538
-------------- --------------
Net increase in cash 281,069 86,895
Cash, beginning of year 90,458 3,563
-------------- --------------
Cash, end of year $ 371,527 90,458
============== ==============
F-6
NOTES TO FINANCIAL STATEMENTS
September 30, 2003 and 2002
Note 1 - Organization and Summary of Significant Accounting Policies
Organization
The Company is incorporated under the laws of the state of Utah and is primarily
engaged in the business of acquiring, developing, producing and selling oil and
gas properties to companies located in the continental United States.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid investments with a maturity of three months or less to be cash
equivalents.
Concentration of Credit Risk
The Company maintains its cash in bank deposit accounts, which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts. The Company believes it is not exposed to any significant credit
risk on cash and cash equivalents.
Resale Leases
The Company capitalizes the costs of acquiring oil and gas leaseholds held for
resale, including lease bonuses and any advance rentals required at the time of
assignment of the lease to the Company. Advance rentals paid after assignment
are charged to expense as carrying costs in the period incurred. Costs of oil
and gas leases held for resale are valued at lower of cost or net realizable
value and included in current assets since they could be sold within one year,
although the holding period of individual leases may be in excess of one year.
The cost of oil and gas leases sold is determined on a specific identification
basis.
Oil and Gas Producing Activities
The Company utilizes the successful efforts method of accounting for its oil and
gas producing activities. Under this method, all costs associated with
productive exploratory wells and productive or nonproductive development wells
are capitalized while the costs of nonproductive exploratory wells are expensed.
F-7
PIONEER OIL AND GAS
NOTES TO FINANCIAL STATEMENTS
September 30, 2003 and 2002
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
Oil and Gas Producing Activities (continued)
If an exploratory well finds oil and gas reserves, but a determination that such
reserves can be classified as proved is not made after one year following
completion of drilling, the costs of drilling are charged to operations.
Indirect exploratory expenditures, including geophysical costs and annual lease
rentals are expensed as incurred. Unproved oil and gas properties that are
individually significant are periodically assessed for impairment of value and a
loss is recognized at the time of impairment by providing an impairment
allowance. Other unproved properties are amortized based on the Company's
experience of successful drillings and average holding period. Capitalized costs
of producing oil and gas properties after considering estimated dismantlement
and abandonment costs and estimated salvage values, are depreciated and depleted
by the units-of-production method. Support equipment and other property and
equipment are depreciated over their estimated useful lives.
On the sale or retirement of a complete unit of a proved property, the cost and
related accumulated depreciation, depletion and amortization are eliminated from
the property accounts, and the resultant gain or loss is recognized. On the
retirement or sale of a partial unit of proved property, the cost is charged to
accumulated depreciation, depletion and amortization with a resulting gain or
loss recognized in income.
On the sale of an entire interest in an unproved property for cash or cash
equivalent, gain or loss on the sale is recognized, taking into consideration
the amount of any recorded impairment if the property has been assessed
individually. If a partial interest in an unproved property is sold, the amount
received is treated as a reduction of the cost of the interest retained.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets. Expenditures for maintenance and repairs are
expensed when incurred and betterments are capitalized. When assets are sold,
retired or otherwise disposed of the applicable costs and accumulated
depreciation, depletion and amortization are removed from the accounts, and the
resulting gain or loss is reflected in operations.
F-8
PIONEER OIL AND GAS
NOTES TO FINANCIAL STATEMENTS
September 30, 2003 and 2002
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
Income Taxes
Deferred income taxes arise from temporary differences resulting from income and
expense items reported for financial accounting and tax purposes in different
periods. Deferred taxes are classified as current or noncurrent, depending on
the classification of the assets and liabilities to which they relate. Deferred
taxes arising from temporary differences that are not related to an asset or
liability are classified as current or noncurrent depending on the periods in
which the temporary differences are expected to reverse. Temporary differences
result primarily from a net operating loss carryforward, intangible drilling
costs and depletion.
Earnings Per Share
The computation of basic earnings per common share is based on the weighted
average number of shares outstanding during each year.
The computation of diluted earnings per common share is based on the weighted
average number of shares outstanding during the year plus the common stock
equivalents which would arise from the exercise of stock options and warrants
outstanding using the treasury stock method and the average market price per
share during the year. Common stock equivalents are not included in the diluted
earnings per share calculation when their effect is antidilutive.
Revenue Recognition
Revenue is recognized from oil sales at such time as the oil is delivered to the
buyer. Revenue is recognized from gas sales when the gas passes through the
pipeline at the well head. Revenue from overriding royalty interests is
recognized when earned.
The Company does not have any gas balancing arrangements.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
primarily related to oil and gas property reserves and prices, that affect the
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.
F-9
PIONEER OIL AND GAS
NOTES TO FINANCIAL STATEMENTS
September 30, 2003 and 2002
Note 2 - Property and Equipment
Property and equipment consists of the following:
September 30,
2003 2002
Oil and gas properties (successful efforts method) $ 1,914,635 2,242,439
Office furniture and equipment 133,321 129,453
--------- ---------
2,047,956 2,371,892
Less accumulated depreciation, depletion and
amortization (1,609,075) (1,468,691)
--------- ---------
$ 438,881 903,201
========= =========
Note 3 - Note Payable
The Company has a bank revolving line-of-credit agreement, which allows the
Company to borrow a maximum amount of $750,000. This agreement bears interest at
the bank's prime rate plus 1 percent and is secured by accounts receivable and
producing properties. The line-of-credit matures on December 31, 2003 and had an
outstanding balance at September 30, 2003 and 2002 of $0 and $654,158,
respectively.
Note 4 - Stock Subscription Receivable
The stock subscription receivable consists of a six percent receivable due from
the Company's ESOP. The receivable is reduced every six months by the amount of
the obligation owed by the Company to the ESOP, less interest (see Note 10).
During the years ended September 30, 2003 and 2002, the Company recognized
$15,104 and $16,016 of interest income related to this note.
F-10
PIONEER OIL AND GAS
NOTES TO FINANCIAL STATEMENTS
September 30, 2003 and 2002
Note 5 - Income Taxes
The provision for income taxes differs from the amount computed at federal
statutory rates as follows:
Years Ended
September 30,
2003 2002
--------- -------
Income tax provision (benefit) at statutory rate $ 45,000 (50,000)
Change in valuation allowance (45,000) 50,000
------ ------
$ - -
Deferred tax assets (liabilities) are comprised of the following:
September 30,
2003 2002
--------- --------
Intangible drilling costs and depletion $ 15,000 (190,000)
Net operating loss carryforwards 696,000 856,000
AMT credit carryforward 5,000 5,000
--------- -------
716,000 671,000
--------- -------
Valuation allowance (716,000) (671,000)
--------- -------
$ - -
========= =======
A valuation allowance has been recorded for the full amount of the deferred tax
asset because it is more likely than not that the deferred tax asset will not be
realized.
As of September 30, 2003, the Company had net operating loss carryforwards of
approximately $1,988,000. These carryforwards begin to expire in 2012. If
substantial changes in the Company's ownership should occur there would be an
annual limitation of the amount of NOL carryforward which could be utilized.
Also, the ultimate realization of these carryforwards is due, in part, on the
tax law in effect at the time and future events that cannot be determined.
F-11
PIONEER OIL AND GAS
NOTES TO FINANCIAL STATEMENTS
September 30, 2003 and 2002
Note 6 - Sales to Major Customers
The Company had sales to major customers during the years ended September 30,
2003 and 2002, which exceeded ten percent of total sales as follows:
September 30,
2003 2002
------- -------
Company A $ 420,000 140,000
Company B 414,000 306,000
Company C 134,000 88,000
Company D 115,000 90,000
Note 7 - Related Party Transactions
The Company acts as the operator for several oil and gas properties in which
employees, officers and other related and unrelated parties have a working or
royalty interest. At September 30, 2003 and 2002 there was $17,917 and $12,236,
respectively, included in accounts payable due from/to related parties as a
result of these activities. The Company also is the general manager in certain
limited partnerships and the operator for certain joint ventures formed for the
purpose of oil and gas exploration and development.
The Company leases its office space from certain officers of the Company. The
lease requires monthly rental payments of $2,500 plus all expenses pertaining to
the office space and expires in September 2005. Future minimum lease payments
for the next two years are $30,000 each year. Rent expense for the years ended
September 30, 2003 and 2002 was approximately $30,000 each year.
The Company has a stock subscription receivable from the ESOP (See Note 4).
Note 8 - Supplemental Disclosures of Cash Flow Information
Operations reflect actual amounts paid for interest and income taxes
approximately as follows:
September 30,
2003 2002
------ ------
Interest $ 23,000 26,000
Income taxes - -
PIONEER OIL AND GAS
NOTES TO FINANCIAL STATEMENTS
September 30, 2003 and 2002
Note 9 - Fair Value of Financial Instruments
The Company's financial instruments consist of cash, receivables, payables and a
note payable. The carrying amount of cash, receivables and payables approximates
fair value because of the short-term nature of these items. The carrying amount
of the note payable approximates fair value as the note bears interest at
floating market interest rates.
Note 10 - Stock Options
The Company has granted stock options to the members of the Board of Directors
and the officers and employees of the Company to purchase shares of the
Company's common stock. The exercise price of the options and warrants is equal
to or in excess of the fair market value of the stock on the date of grant. At
September 30, 2003 and 2002, the Company had 420,000 options outstanding.
Information related to these options at September 30, 2003 is as follows:
Outstanding Exercisable
------------------------------------------------ --------------------------
Weighted
Average
Remaining Weighted Weighted
Contractual Average Average
Exercise Number Life Exercise Number Exercise
Price Outstanding (Years) Price Exercisable Price
-------- ---------- ------- -------- ----------- ------
$ .20 420,000 7.9 $ .20 420,000 $ .20
Employee Stock Ownership Plan
The Company has adopted a noncontributory employee stock ownership plan (ESOP)
covering all full-time employees who have met certain service requirements. It
provides for discretionary contributions by the Company as determined annually
by the Board of Directors, up to the maximum amount permitted under the Internal
Revenue Code. The plan has received IRS approval under Section 401(A) and 501(A)
of the Internal Revenue Code. Pension expense charged to operations for the
years ended September 30, 2003 and 2002 was $41,396 and $27,597 respectively.
All outstanding shares held by the ESOP are included in the calculation of
earnings per share.
F-13
PIONEER OIL AND GAS
NOTES TO FINANCIAL STATEMENTS
September 30, 2003 and 2002
Note 11 - Commitments and Contingencies
Limited Partnerships
The Company has an immaterial interest in a limited partnership drilling program
and acts as the general partner. As the general partner, the Company is
contingently liable for any obligations of the partnership and may be
contingently liable for claims generally incidental to the conduct of its
business as general partner. As of September 30, 2003, the Company was unaware
of any such obligations or claims arising from this partnership.
Employment Agreements
The Company has entered into severance pay agreements with employees and
officers of the Company who also serve as board members. Under the terms of the
agreements, a board member who is terminated shall receive severance pay equal
to the amount such board member received in salary and bonus for the two years
prior to termination.
Litigation
The Company may become or is subject to investigations, claims or lawsuits
ensuing out of the conduct of its business, including those related to
environmental safety and health, commercial transactions, etc. The Company is
currently not aware of any such item, which it believes could have a material
adverse affect on its financial position.
F-14
PIONEER OIL AND GAS
SCHEDULE OF SUPPLEMENTARY INFORMATION
ON OIL AND GAS OPERATIONS
September 30, 2003 and 2002
The information on the Company's oil and gas operations as shown in this
schedule is based on the successful efforts method of accounting and is
presented in conformity with the disclosure requirements of the Statement of
Financial Accounting Standards No. 69 "Disclosures about Oil and Gas Producing
Activities."
Capitalized Costs Relating to Oil and Gas Producing Activities
September 30,
2003 2002
--------- ---------
Proved oil and gas properties and related equipment $ 1,763,802 2,012,912
Unproved oil and gas properties 150,833 229,527
--------- ---------
Subtotal 1,914,635 2,242,439
Accumulated depreciation, depletion and amortization
and valuation allowances (1,483,991) (1,347,265)
--------- ---------
$ 430,644 895,174
--------- ---------
Costs Incurred in Oil and Gas Acquisition, Exploration and Development
Activities
September 30,
2003 2002
Acquisition of properties:
Proved $ - -
Unproved $ - -
Exploration costs $ - -
Development costs $ 96,272 269,214
F-15
PIONEER OIL AND GAS
SCHEDULE OF SUPPLEMENTARY INFORMATION
ON OIL AND GAS OPERATIONS
September 30, 2003 and 2002
Results of Operations for Producing Activities
Years Ended
September 30,
2003 2002
Oil and gas - sales $ 1,360,985 908,821
Production costs net of reimbursements (687,730) (463,663)
Exploration costs (248,753) (183,393)
Depreciation, depletion and amortization
and valuation provisions (136,726) (84,596)
------- -------
Net income before income taxes 287,776 177,169
Income tax provision (98,000) (60,000)
------- -------
Results of operations from producing activities
(excluding corporate overhead and interest costs) $ 189,776 117,169
------- -------
F-16
PIONEER OIL AND GAS
SCHEDULE OF SUPPLEMENTARY INFORMATION
ON OIL AND GAS OPERATIONS
September 30, 2003 and 2002
Reserve Quantity Information (Unaudited)
The estimated quantities of proved oil and gas reserves disclosed in the table
below are based upon on appraisal of the proved developed properties by Fall
Line Energy, Inc. Such estimates are inherently imprecise and may be subject to
substantial revisions.
All quantities shown in the table are proved developed reserves and are located
within the United States.
Years Ended September 30,
2003 2002
Oil Gas Oil Gas
(bbls) (mcf) (bbls) (mcf)
Proved developed and undeveloped reserves:
Beginning of year 118,572 774,733 128,589 580,543
Revision in previous estimates 13,841 53,677 4,992 286,106
Discoveries and extensions - 214,708 - -
Purchase in place - - - -
Production (15,927) (163,798) (15,009) (91,916)
Sales in place - - - -
------- ------- ------- -------
End of year 116,486 879,320 118,572 774,733
======= ======= ======= =======
Proved developed reserves:
Beginning of year 118,572 774,733 128,589 580,543
End of year 116,486 879,320 118,572 774,733
F-17
PIONEER OIL AND GAS
SCHEDULE OF SUPPLEMENTARY INFORMATION
ON OIL AND GAS OPERATIONS
September 30, 2003 and 2002
Standardized Measure of Discounted Future Net Cash Flows and Changes Therein
Relating to Proved Oil and Gas Reserves (Unaudited)
Years Ended
September 30,
2003 2002
Future cash inflows $ 7,340,000 3,950,000
Future production and development costs (1,905,000) (1,676,000)
Future income tax expenses (1,848,000) (773,000)
--------- ---------
3,587,000 1,501,000
10% annual discount for estimated timing of cash flows (1,415,000) (624,000)
--------- ---------
Standardized measure of discounted future net cash flows $ 2,172,000 877,000
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The preceding table sets forth the estimated future net cash flows and related
present value, discounted at a 10% annual rate, from the Company's proved
reserves of oil, condense and gas. The estimated future net revenue is computed
by applying the year end prices of oil and gas (including price changes that are
fixed and determinable) and current costs of development production to estimated
future production assuming continuation of existing economic conditions. The
values expressed are estimates only, without actual long-term production to base
the production flows, and may not reflect realizable values or fair market
values of the oil and gas ultimately extracted and recovered. The ultimate year
of realization is also subject to accessibility of petroleum reserves and the
ability of the Company to market the products.
F-18
PIONEER OIL AND GAS
SCHEDULE OF SUPPLEMENTARY INFORMATION
ON OIL AND GAS OPERATIONS
September 30, 2003 and 2002
Changes in the Standardized Measure of
Discounted Future Cash Flows (Unaudited)
Years Ended September 30,
2003 2002
Balance, beginning of year $ 877,000 1,121,000
Sales of oil and gas produced net of production costs (539,000) (204,000)
Net changes in prices and production costs 1,186,000 (338,000)
Extensions and discoveries, less related costs 876,000 -
Purchase and sales of minerals in place - -
Revisions of estimated development costs - -
Revisions of previous quantity estimate 351,000 374,000
Accretion of discount 88,000 112,000
Net changes in income taxes (667,000) (188,000)
--------- -------
Balance, end of year $ 2,172,000 877,000
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