U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended March 31, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number: 0-27321
Vista Exploration Corporation
-----------------------------
(Name of small business issuer in its charter)
Colorado 84-1493152
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11952 Farley, Shawnee Mission, KS 66213
---------------------------------------
(Address of principal executive offices, including ZIP Code)
Issuer's telephone number: (913) 814-8313
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year ended March 31, 2002
were $0.
The aggregate market value of the 1,940,000 shares of the issuer's
outstanding common stock held by non-affiliates of the issuer was $194,000 as of
June 28, 2002. The stock price for computation purposes was $0.10 per share
which is the opening price that has been applied for in the issuer's NASD OTC
Bulletin Board application. Presently there is no market for the issuer's
securities.
The issuer had 6,090,000 shares of its common stock issued and outstanding
as of June 28, 2002, the latest practicable date before the filing of this
report.
VISTA EXPLORATION CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-KSB
Page
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PART I.........................................................................3
Item 1. Description of Business......................................3
Item 2. Description of Property.....................................16
Item 3. Legal Proceedings...........................................16
Item 4. Submission of Matters to a Vote of Security Holders.........16
PART II.......................................................................16
Item 5. Market for Common Equity and Related Stockholder Matters....16
Item 6. Plan of Operation...........................................17
Item 7. Financial Statements........................................19
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure.........................19
PART III......................................................................19
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the
Exchange Act................................................19
Item 10. Executive Compensation......................................20
Item 11. Security Ownership of Certain Beneficial Owners and
Management..................................................21
Item 12. Certain Relationships and Related Transactions..............22
Item 13. Exhibits and Reports on Form 8-K............................24
2
PART I
Forward-Looking Statements
This report on Form 10-KSB contains forward-looking statements that concern
our business. Such statements are not guarantees of future performance and
actual results or developments could differ materially from those expressed or
implied in such statements as a result of certain factors, including those
factors set forth in "Description of Our Business," "Plan of Operation" and
elsewhere in this report. All statements, other than statements of historical
facts, included in this report that address activities, events or developments
that we expect, believe, intend or anticipate will or may occur in the future,
including the following matters, are forward looking statements:
o our ability to obtain sufficient financing to commence drilling
operations,
o our ability to discover producible gas on our leased properties,
o capital costs of drilling and completing wells,
o capital costs of building other related production or gathering
facilities,
o the availability of contract operators and drillers,
o the continued demand for natural gas, and
o the expansion and growth of our operations.
These statements are based on certain assumptions and analyses made by us in
light of our experience and our product research. Such statements are subject to
a number of assumptions including the following:
o risks and uncertainties, including the risks discussed in this annual
report,
o general economic and business conditions,
o the business opportunities that may be presented to and pursued by us,
and
o changes in laws or regulations and other factors, many of which are
beyond our control.
The cautionary statements contained or referred to in this report should be
considered in connection with any subsequent written or oral forward-looking
statements that may be issued by us or persons acting on our behalf. We
undertake no obligation to release publicly any revisions to any forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
Item 1. Description of Our Business.
We intend to acquire and develop coalbed methane gas producing properties
in the United States, with our initial efforts focused on southeast Kansas. We
may do this by leasing oil and gas interests and drilling the leased property to
prove reserves or by acquiring working interests in production or reserves.
Coalbed methane gas is a form of natural gas that is formed during the
coalification process, which is the process that, over time, transforms plant
material into coal. This gas is contained generally within the coal seams that
formed it and sometimes in the surrounding rock strata. Fracturing the coal seam
and removing any water surrounding the seam will allow the gas to be recovered.
Once recovered, coalbed methane gas generally can be injected directly into
natural gas pipelines and sold as fuel for heating and power generation. In the
event that we are successful at finding and producing coalbed methane gas, we
intend to utilize existing natural gas distribution pipelines to get our gas to
market.
3
Our current plan of operation has three separate phases. Phase one
consisted of identifying the most promising areas to drill for coalbed methane
gas and acquiring mineral rights for as many properties within the identified
area as practicable. Phase two will involve drilling and testing wells on the
leased acres to prove reserves, completing promising test wells, extracting the
oil, gas and other hydrocarbons that we find, and delivering them to market. In
phase three we plan to expand our drilling operations to maximize our
production. In August 2001 we changed our name from "Bail Corporation" to "Vista
Exploration Corporation" to reflect our new plan of operation.
Phase 1 - Our Area of Interest
In June 2001 we retained consultants TCC Royalty Corp. and Austin
Exploration, L.L.C. to identify areas in southeast Kansas suitable for coalbed
methane exploration and development, to provide us with customary geological and
land maps, and to assist us with leasing mineral rights. We have paid our
consultants an initial fee of $25,000 and we are obligated to pay them a 3%
royalty fee on all oil and gas produced from property leased or purchased by us,
or oil and gas purchased by us from properties, within the prospective area
identified by the consultants. Additional standard geological services, such as
drill logging services, well location recommendations and drill log
interpretations, are available to us from TCC Royalty Corp. at the rate of $500
per day.
The targeted area identified by our management and our consultants is the
southwestern quarter of Coffey County, Kansas. This area was targeted for
several reasons, including its being located above known coal-bearing units
(particularly the Cherokee Group), its proximity to active leasing efforts of
other oil and gas companies in southeastern Kansas in general and southern
Coffey County in particular, known oil and gas drilling and production in the
region, the availability of mineral rights for lease, and other geological
information provided by TCC Royalty Corp.
The Western Interior Coal Region includes three basins in the central
United States that contain gas bearing coal deposits of similar age and rank.
They are the Arkoma, Forest City and Cherokee Basins. Together these three
basins stretch from western Arkansas and central Oklahoma northward through
eastern Kansas and western Missouri into central Iowa. Our targeted area is
within the Cherokee Basin which is defined geographically as the area bounded to
the north by the Bourbon Arch, to the east and southeast by the Ozark Dome, and
to the west by the Nemaha uplift, encompassing northern Oklahoma, southeastern
Kansas, and southwestern Missouri.
Numerous geological studies, such as Public Information Circular 19 -
Natural Gas from Coal in Eastern Kansas published by the Kansas Geological
Survey in 2001, demonstrate that the coal residing in the Cherokee Basin is
typically of Pennsylvanian age and is found, at various depths and thicknesses,
throughout the basin. Because coal found throughout the basin is generally of
the same age and type, theoretically it should contain similar quantities and
quality of gas. Although currently there are no coalbed methane wells producing
in our targeted area, there is a history of such production to the south of our
targeted area, including Labette, Wilson, Neosho and Montgomery Counties,
Kansas. Additionally, there are a small number of coalbed methane gas wells
producing in Woodson County, Kansas (approximately 10 miles south of our
targeted area) and Anderson County, Kansas (approximately 20 miles east of our
targeted area). All of these counties are in the Cherokee Basin. Reports from
these producing wells show coal seams and black shale averaging four feet in
thickness and initial water production averaging less than 50 barrels per day,
eventually dropping to below 10 barrels per day.
The rules and regulations of the Kansas Corporation Commission require that
drill logs must be generated for each well drilled and must be submitted to the
Commission, whereupon they become part of the public record. Additionally, many
4
operators also complete geophysical logs which also become public record and
clearly define the type of rock and its depth or location in the bore hole of
each well. We have examined over 100 such logs from oil exploration in and
surrounding our targeted area. These logs generally confirm the uniformity of
the coalbeds in the region and suggest coal seams within our targeted area
similar to those found to the south of our targeted area. This conclusion was
confirmed by William Stoeckinger, a certified petroleum geologist who has
published numerous articles regarding coalbed methane activities in Kansas. We
have also discussed many of these logs with an experienced well operator and
driller who we anticipate hiring to act as both the operator and driller of our
wells. Although we believe that the coalbeds within our targeted area will prove
to be similar to those found to the south of our targeted area, we cannot assure
you that they are or that even if they are, that we will find commercially
producible amounts of methane gas or any other hydrocarbons.
Phase 1 - Our Leasing Activities
In July 2001 we rented an office in Burlington, Kansas for $350.00 per
month and began leasing land in the south half of Coffey County, Kansas, and the
southeast portion of Lyon County, Kansas, in order to drill for coalbed methane
gas. Lyon County is adjacent to, and west of, Coffey County and both counties
are within the Cherokee Basin.
As of March 31, 2002, we had acquired 115 separate leases covering
approximately 15,388 acres, of which approximately 13,902 acres are in Coffey
County and approximately 1,486 acres are in Lyon County. We paid approximately
$50,000 to obtain our leases. In the event that we are successful in phase two
of our plan and we find commercially producible gas or oil, we intend to lease
additional available land to the extent that we believe such land will further
our exploration and development activities. Because we believe that we can
continue to successfully lease land without having our office in Burlington,
Kansas, we closed that office in November 2001.
Each of our southeast Kansas mineral leases grants us the exclusive right
to explore for and produce oil, gas, coalbed methane, and other hydrocarbons and
minerals from wells located on the leased property. Each lease also grants us
rights-of-way and easements for laying pipelines and servicing other wells in
the vicinity of the leased property. Under the terms of each lease, the lessor
will receive a royalty equal to 12.5% of all oil, gas or other minerals produced
from the leased property or the proceeds of the sale thereof, and we will be
entitled to 87.5% of such production or proceeds. The lessor's royalty will be
free of costs and expenses and we will be responsible for all expenses incurred
in our operations including drilling, testing, completing and equipping.
Each lease has an initial or primary term of 5 years which is automatically
extended during such period thereafter as we continue to produce oil or gas from
the leased property or acres pooled with the leased property or we continue our
drilling operations. After the primary term, in the event oil and gas is not
being produced or shall have ceased on the leased property, the lease will not
terminate if we commence additional drilling or reworking operations within 120
days. If a lease is not extended beyond its primary term by production or
operations, we have the option to extend the primary term for an additional 3
years by paying the lessor $10 per net mineral acre.
We paid each lessor an initial payment of $10 upon the execution of our
lease. Regardless of whether or not we are producing oil and gas from a leased
property or acres pooled therewith, on the one-year anniversary of each lease we
will be required to pay the lessor $10 per net mineral acre leased. If we fail
to make such payment, the lease will terminate 30 days thereafter. We have
agreed to pay each lessor a royalty equal to 12.5% of any oil, gas or other
minerals that may be produced from wells drilled on the leased property. In the
event of a shut-in well (a well capable of producing oil or gas but, for
whatever reason, is not producing oil or gas), we have agreed to pay the lessor
a royalty equal to $1 per year per net mineral acre.
5
Pursuant to the lease payment terms described above, we will be obligated
to make the following one-year anniversary payments beginning in August 2002:
Month No. of Leases No. of Net Mineral Acres Payment
----- ------------- ------------------------ -------
August 69 9,491.35 94,913.50
September 42 5,397.10 53,971.00
October 4 500.00 5,000.00
--- --------- -----------
TOTAL: 115 15,388.45 $153,884.50
Under our leases we have the right to pool or unitize the leased property
with other land owned or leased by us in the immediate vicinity for the
production of oil or gas. With respect to shallow gas and associated
hydrocarbons produced in conjunction therewith, we have the right to pool or
unitize the leased properties into a development pool of a maximum of 3,000
acres if we have drilled at least 2 wells within the pooled unit no later than 1
year after the expiration of the primary term of the lease.
We have agreed to indemnify each lessor against any and all liabilities
arising out of our operations on the leased property, including environmental
liabilities. We also have agreed to pay each lessor the amount of $500 per acre
as liquidated damages for any leased property that is damaged as a result of our
operations on such leased property. Additionally, we have agreed to pay each
lessor for any damages caused by us to any crops growing on the leased property.
Following the completion of our operations on a leased property, we are
obligated to restore the well site to its original condition and land contour,
to the extent possible.
All of the oil and gas property that we have leased to date is considered
"undeveloped acreage" which the Securities and Exchange Commission defines as
"lease acreage on which wells have not been drilled or completed to a point that
would permit the production of commercial quantities of oil and gas regardless
of whether such acreage contains proved reserves." We own a working interest in
15,388.45 gross undeveloped acres (100% of each leased acre) and 13,143.30 net
undeveloped acres (84.5% of 10,717.99 leased acres and 87.5% of 4,670.46 leased
acres) in southern Kansas. A "working interest" is the operating interest that
gives us, as the operator, the right to drill, produce and conduct operating
activities on the property and a share of production. A "net acre" (or net well)
is deemed to exist when the sum of the fractional working interest owned in
gross acres or gross wells equals one. The number of net acres or net wells is
then expressed as a whole number and fractions thereof. A "gross acre" (or gross
well) is the total acres or wells, as the case may be, in which a working
interest is owned.
Before committing substantial resources, including obtaining necessary
permits and preparing for drilling on any particular leased property, we plan to
complete our due diligence on our leased property, including obtaining a title
opinion or title insurance to confirm our rights to any oil, gas and other
minerals produced pursuant to our lease. We estimate that each title opinion or
title insurance will cost $1,000 and will take approximately two days to obtain.
It is difficult to determine what our final interest in any oil, gas or other
mineral that we produce will be until we have negotiated all agreements with the
third parties that we will hire to perform our drilling activities and operate
our wells.
6
In addition to our leasing activities in Kansas, in June 2001 we acquired a
one-year option for a lease on 4,560 acres in Island Township, Blaine County,
Montana from Geominerals Corp. for $1,400. Geominerals Corp. is controlled by
George Andrews, our former president and director. If we exercise the option, we
will pay $2.50 per acre for a total purchase price of $10,000 (after credit of
the amount paid for the option). Currently we do not intend to exercise this
option.
Phase 2 - Our Anticipated Drilling Activities
Phase two of our current plan of operation will involve identifying the
most promising and cost-effective drill sites on our leased acres, drilling and
testing wells to prove reserves, completing promising test wells, extracting the
oil, gas and other hydrocarbons that we find, and delivering them to market.
Although we believe that we have leased enough land to move forward with phase
two of our plan, we will have to obtain additional financing before we can
implement this next phase. We anticipate that we will need approximately
$850,000 to achieve our initial goal of drilling, testing and completing ten
coalbed methane gas producing wells.
We have just begun phase two of our plan of operation. To date we have not
commenced any drilling or other exploration activities on the properties that we
have leased and thus we do not have any estimates of oil and gas reserves on
such properties. Consequently we have not reported our reserve estimates to any
state or federal authority.
Furthermore, we have not yet identified any specific drill sites. We will
select drill sites based on a variety of factors, including information gathered
from historic records and drill logs (depth and thickness of coal seams and the
results of electric gamma ray readings), proximity to existing pipelines, ease
of access for drilling equipment, the presence of oil and natural gas in the
immediate vicinity, and consultations with our geologist, operator and driller.
Because a majority of this research information was obtained during phase one of
our plan, we believe that the cost of identifying drill sites will be
insubstantial. With the exception of the evaluation of the geological structures
that we encounter during the drilling process, the cost of which has been
factored into our estimated drilling costs, we do not anticipate needing any
further product research.
If phase two of our plan of operation is fully implemented, we will drill,
test and complete ten coalbed methane gas producing wells. Our drilling efforts
also will determine whether there are other forms of commercially producible
hydrocarbons present, such as oil or other types of natural gas. Each well will
be drilled and tested individually. If commercially producible amounts of gas
are present, the well will be completed and facilities installed to connect to
gathering or pipeline facilities. Completed wells that are producing and
connected to distribution pipelines will begin generating revenues as soon as
they begin pumping although these revenues may be realized on a quarterly basis.
We anticipate that each well in our targeted area will cost approximately
$25,000 to drill and test, an additional $15,000 to complete, plus an additional
$350 per month per well to pay for electricity, pulling and repairs, pumping and
other miscellaneous charges. We intend to hire third parties to operate our
wells and perform our drilling activities.
Our anticipated costs of drilling operations are based on estimates
obtained from third-party service providers whom we believe will be available to
us to provide the services that we will need. However, the actual costs of such
operations may be more or less than the estimates contained herein. If actual
costs of operations exceed our estimates to any significant degree, we may
require additional funding to achieve our phase two objectives.
7
Once we have identified a proposed drilling site, we will engage the
services of an operator licensed to operate oil and gas wells in the State of
Kansas. The operator will be responsible for permitting the well, which will
include obtaining permission from the Kansas Corporation Commission relative to
spacing requirements and any other state and federal environmental clearances
required at the time that the permitting process commences. Additionally, the
operator will formulate and deliver to all interest owners an operating
agreement establishing each participants' rights and obligations in that
particular well based on the location of the well and the ownership. In addition
to the permitting process, the operator will be responsible for hiring the
driller, geologist and land men to make final decisions relative to the zones to
be targeted, confirming that we have good title to each leased parcel covered by
the spacing permit and to actually drill the well to the target zone. Should the
well be successful, the operator would thereafter be responsible for completing
the well and connecting it to the most appropriate transmission facility for the
hydrocarbons produced. It is likely that we will pay the operator by issuing it
a net revenue interest, which we expect would be equal to the 12.5% interest
that we have granted to the mineral owners from whom we have leased our
property.
The operator will be the caretaker of the well once production has
commenced. As such, the operator will be responsible for paying bills related to
the well, billing working interest owners for their proportionate expenses in
drilling and completing the well, and selling the production from the well. We
anticipate that once the production has been sold, the purchaser thereof will
carry out its own research with respect to ownership of that production and will
send out a division order to confirm the nature and amount of each interest
owned by each interest owner. Once a division order has been established and
confirmed by the interest owners, the production purchaser will issue the checks
to each interest owner in accordance with its appropriate interest. From that
point forward, the operator also will be responsible for maintaining the well
and the wellhead site during the entire term of the production or until such
time as the operator has been replaced.
Although we presently do not intend to seek status as a licensed operator,
if in the future we believe that seeking licensed operator status is appropriate
and we have adequate staff available to us, we may decide to operate our own
wells.
We have had preliminary discussions with Becker Drilling of Bucyrus,
Kansas, to act as both the operator and driller of our wells. Becker Drilling
was established in 1977 and is owned and operated by Mike Becker, who has
drilled and completed over 1,000 oil and gas wells in Kansas, Oklahoma, Texas,
New Mexico, Illinois, Wyoming, and Missouri, including over 20 coalbed methane
wells. We intend to continue our discussions with Becker Drilling after we
secure the additional financing needed to implement phase two of our plan of
operation.
The driller will be responsible for performing, or contracting with third
parties and supervising their efforts, all aspects of the drilling operation
except for geological services. We currently anticipate that we will continue to
utilize outside consultants for geological services on an as-needed basis.
The success of phase two of our plan of operation is dependent upon our
ability to obtain additional capital to drill our wells and also upon our
successfully finding commercially producible amounts of coalbed methane gas or
other hydrocarbons in the wells that we drill. There is no guarantee that we
will obtain the necessary capital or that we will find commercially producible
amounts of gas if our drilling operations commence.
8
Phase 2 - Getting Our Products To Market
If any of our wells proves to hold commercially producible gas, we may need
to install necessary infrastructure to permit delivery of our gas from the
wellhead to a major pipeline. We have identified the locations of all major
gathering and other facilities currently installed in the general vicinity of
our targeted area and have initiated contacts with the owners of these
facilities to ascertain their specific requirements with respect to transporting
our gas to pipelines for transmission, including volume and quality of gas and
connection costs. Pursuant to the open access regulations issued by the Federal
Energy Regulatory Commission (beginning with Order No. 436 issued in 1985 and
most recently with Order No. 636 issued in 1992), the owner of an interstate
pipeline is required to transport any gas that a producer delivers so long as
the gas delivered meets the pipeline's reasonable, non-discriminatory
requirements regarding such things as quality and quantity of gas.
We cannot accurately predict the costs of transporting our gas products to
existing pipelines until we locate our first successful well. The cost of
installing an infrastructure to deliver our gas to a pipeline or gatherer will
vary depending upon the distance the gas must travel from our wellhead to the
tap, and whether the gas first must be treated to meet the purchasing company's
quality standards. However, based on the close proximity of several major
distribution pipelines to our leased properties, plus our intent to drill as
close to these pipelines as practicable, we anticipate that the total cost of
installing such a infrastructure for ten producing wells will be approximately
$150,000, which includes a one-time expense of $50,000 to tap into the main
distribution pipeline, which expense will be payable for the first distribution
line.
Traditionally, the major marketers of gas in the United States have
purchased production from anyone who can deliver sufficient quantities of
quality gas. Because some of these companies have purchased coalbed methane from
producing wells in the southern part of Kansas, we believe that if the gas
produced from wells drilled in our targeted area meets their criteria in both
quantity and quality, they will purchase our gas from us at posted index market
prices. However, to date, we have not entered into any purchase agreements nor
have we received assurances from anyone that they will enter into such
agreements with us in the future with respect to any oil or gas produced from
any properties that we acquire.
The prices obtained for oil and gas are dependent on numerous factors
beyond our control, including domestic and foreign production rates of oil and
gas, market demand and the effect of governmental regulations and incentives.
Phase 3 - Expanding Our Operations
The expansion phase of our plan of operation can commence only after the
successful completion of phase two, which means that we will have operating
wells that are producing gas and generating revenues for us. Our expansion
efforts will be constrained by state and local laws as well as by the number of
mineral acres that we have leased. For example, because State of Kansas
regulations require that coalbed methane wells be spaced no closer than eighty
acres, we could expand to a maximum of 187 wells based on the property that we
have leased to date. We intend to lease additional available land to the extent
that we believe such land will further our exploration and development
activities.
9
Employees
We currently have no full time employees. Our president has agreed to
devote as much time to our activities as is required to implement our plan of
operation. In July 2001 we retained two independent leasing consultants to help
us lease land for our oil and gas operations. We terminated our agreements with
the independent leasing consultants in October 2001 and December 2001.
Competition
There is intense competition in the oil and gas industry with respect to
the acquisition of producing properties, proved undeveloped acreage, and leases
for these properties. Many major and independent oil and gas companies actively
pursue and bid for the mineral rights of desirable properties, and many
companies have been actively leasing minerals in and around Coffey County,
Kansas, where our targeted area is centered. To date, the majority of the
leasing activity in southeast Kansas has been to the south and east of our
leased properties. However, there has been recent leasing activity as far north
as Leavenworth County, Kansas, which is approximately 50 miles north of our
targeted area.
We believe that our early leasing efforts in our targeted area have given
us a competitive advantage in southwestern Coffey County, as well as eastern
Lyon County. Although there are unleased tracts within our targeted area, we
believe that these properties will be unattractive to other companies because it
will be difficult for them to obtain a significant amount of contiguous mineral
acres, due to the fact that we hold the rights to a majority of land surrounding
these unleased tracts. However, increased demand for mineral rights in
surrounding areas may impact our ability to expand and grow in the future,
particularly because many of our competitors have substantially greater market
share in the industry, as well as greater financial and other resources, better
name recognition and longer operating histories. As a result, we may not be able
to acquire additional oil and gas properties in desirable locations.
There is also intense competition in the oil and gas industry for access to
contract drillers, geologists, and others needed to drill and complete wells.
Current demand for drilling and contract services in our targeted area appears
to be stable, and we believe our early entry will allow us to build the
relationships necessary to our success. We do not anticipate that competition in
this area will dramatically affect our plan of operation. However, increased
future demand for drillers and contractors may limit our ability to expand in a
timely manner and may negatively impact our ability to grow.
Natural gas, like oil, is non-renewable, and thus we believe that in the
long-run demand is likely to be greater than supply. In its December 1999 report
to the U. S. Secretary of Energy, the National Petroleum Council, or NPC, a
private sector advisory committee to the U. S. Department of Energy, reported on
the significant growth in demand for natural gas. See "Meeting the Challenges of
the Nation's Growing Natural Gas Demand," NPC Natural Gas Study (Dec. 15, 1999).
In that report, the NPC concluded that natural gas demand in the United States
has the potential to grow from 22 trillion cubic feet in 1998 to approximately
29 trillion cubic feet in 2010, and could rise beyond 31 trillion cubic feet in
2015. According to the NPC study, each key consumption sector - residential,
commercial, industrial, and electricity generation - will increase, with
electricity generation accounting for almost 50% of the increase. As the NPC
study notes (at page 7): "Natural gas is now the preferred fuel for new
electricity generation facilities, with 96% of the more than 200 recently
announced new generation projects planning to burn natural gas. The dramatic
shift to natural gas is driven by improved efficiencies, lower capital costs,
reduced construction time, more expeditious permitting of natural gas-burning
facilities, and environmental compliance advantages."
10
Because some of the major marketers of gas in the United States have
purchased coalbed methane from producing wells in the southern part of Kansas,
we believe that if the gas produced from wells drilled in our targeted area
meets their criteria in both quantity and quality, they will purchase our gas
from us at market prices. However, the price and demand for natural gas varies
considerably depending on factors such as the weather and the volatility of
foreign and domestic oil supplies. If market prices are suppressed at the time
that we need to sell our gas in order to generate operating revenues, our
ability to expand our operations may be negatively impacted.
Gas is transported and distributed from our targeted area by several large
energy companies, including Williams Energy, CMS Panhandle Eastern, and Kansas
Gas. Generally speaking, these companies will allow producers to access their
pipelines and will transport gas for producers so long as the gas meets their
volume and quality criteria (pursuant to the Federal Energy Regulatory
Commission's open access regulations). There is no substantive competition to
access these lines as they can be tapped in many different locations.
Government Regulation
Our oil and gas business will be subject to various federal, state and
local laws and governmental regulations which may be changed from time to time
in response to economic or political conditions.
Federal Regulation of First Sales and Transportation of Natural Gas
Historically, natural gas producers sold gas at the wellhead to interstate
pipelines, which in turn delivered gas to local distribution companies, or LDCs.
The transportation and sale of natural gas in U.S. interstate commerce has been
regulated pursuant to several laws enacted by Congress and the regulations
promulgated under these laws by the Federal Energy Regulatory Commission, or
FERC. The FERC regulates the transportation and sale for resale of natural gas
in interstate commerce pursuant to the Natural Gas Act of 1938, or NGA, and the
Natural Gas Policy Act of 1978, or NGPA. In the past, the federal government has
regulated the prices at which oil and gas could be sold. While "first sales" by
producers of natural gas and all sales of crude oil, condensate and natural gas
liquids can currently be made at uncontrolled market prices, Congress could
reenact price controls in the future. Deregulation of wellhead sales in the
natural gas industry began with the enactment of the NGPA in 1978. In 1989,
Congress enacted the Natural Gas Wellhead Decontrol Act, which removed all NGA
and NGPA price and non-price controls affecting wellhead sales of natural gas
effective January 1, 1993. FERC jurisdiction over transportation and sales other
than "first sales" has continued.
Commencing in the mid-1980s, FERC promulgated a series of orders designed
to correct market distortions and to make gas markets more competitive by
removing the transportation barriers to market access. These orders have had a
profound influence upon natural gas markets in the United States and have, among
other things, fostered the development of new wholesale markets, including a
large spot market for gas. The following is a brief description of the most
significant of those orders and is not intended to constitute a complete
description of those orders or their impact.
In April 1992, FERC issued Order No. 636, which restructured both the sales
and transportation services provided by interstate natural gas pipelines. The
purpose of Order No. 636 is to improve the competitive structure of the pipeline
industry and maximize consumer benefits from the competitive wellhead gas
11
market. The major function of Order No. 636 is to assure that the services
non-pipeline companies can obtain from pipelines are comparable to the services
pipeline companies offer to their gas sales customers. One of the key features
of the Order is the "unbundling" of services that pipelines offer their
customers. This means that pipelines must offer transportation and other
services separately from the sale of gas. The courts have largely affirmed the
significant features of Order No. 636 and numerous related orders pertaining to
individual pipelines, although certain appeals remain pending and FERC continues
to review and modify their open access regulations. These initiatives may affect
the intrastate transportation of gas under certain circumstances.
FERC continues to review its regulatory policies and regulations related to
the natural gas market and transportation. In February 2000, FERC issued Order
No. 637 amending certain regulations governing interstate natural gas pipeline
companies in response to the development of more competitive markets for natural
gas and natural gas transportation. The goal of Order No. 637 is to "fine tune"
the open access regulations promulgated by Order No. 636 to accommodate
subsequent changes in the market. Key provisions of Order No. 637 include: (1)
waiving the price ceiling for short-term capacity release transactions until
September 30, 2002, subject to review and possible extension of the program at
that time; (2) permitting value-oriented peak/off peak rates to better allocate
revenue responsibility between short-term and long-term markets; (3) permitting
term-differentiated rates, in order to better allocate risks between shippers
and the pipeline; (4) revising the regulations related to scheduling procedures,
capacity, segmentation, imbalance management, and penalties; (5) retaining the
right of first refusal, or ROFR, and the 5 year matching cap for long-term
shippers at maximum rates, but significantly narrowing the ROFR for customers
that FERC does not deem to be captive; and (6) adopting new web site reporting
requirements that include daily transactional data on all firm and interruptible
contracts and daily reporting of scheduled quantities at market points or
segments. The new reporting requirements became effective September 1, 2000.
As a result of the restructuring of the natural gas industry, active
wholesale markets have developed in production areas and downstream in order for
producers and gas marketers to serve LDCs and other customers. We cannot predict
what action FERC will take on all these matters in the future as it continues to
review its regulatory policies, nor can we accurately predict whether FERC's
actions will, over the long term, achieve the goal of increasing competition in
markets in which our natural gas may be sold. We do not believe that we will be
affected by any action taken materially differently than other natural gas
producers, gatherers and marketers with which we will compete.
FERC regulates the rates and services of "natural-gas companies," which the
NGA defines as persons engaged in the transportation of gas in interstate
commerce for resale. As previously discussed, the regulation of producers under
the NGA has been phased out. Interstate pipelines, however, continue to be
regulated by FERC under the NGA. Various state commissions also regulate the
rates and services of pipelines whose operations are purely intrastate in
nature, although generally sales to and transportation on behalf of other
pipelines or industrial end-users are not subject to material state regulation.
There are many legislative proposals pending in Congress and in the
legislatures of various states that, if enacted, might significantly affect the
petroleum industry. It is impossible to predict what proposals will be enacted
and what effect, if any, such proposals would have on us and our proposed
operations.
State and Local Regulation of Drilling and Production
State and local statutory and regulatory schemes govern various aspects of
oil and gas drilling, exploration and production, including regulatory approvals
required prior to drilling and associated construction activities, oversight of
12
drilling operations and abandonment of wells, regulation of production levels,
operator licensing and reporting, and environmental and conservation issues
associated with drilling and production activities. More specifically, such
schemes may include restrictions on the number and location of wells
("well-spacing" regulations), limitations on the production volume per set time
period ("proration" regulations), requirements that oil/gas be purchased from
common supply sources to prevent discrimination against select producers
("ratable-take orders"), and oil/gas production ratios designed to conserve
naturally occurring reservoir of energy and prolong the life of pools. Further,
to consolidate oil and gas rights in the interest of cooperative development and
sharing of production among members of the oil and gas drilling and production
industry, states also may require unitization (integration or consolidation of
oil and gas interests into an area for the production of hydrocarbons from an
entire unit and the regulation of costs and operation of the unit) and
compulsory pooling (consolidation of oil and gas rights in multiple tracts to a
defined unit for drilling of, and production from, a single well or a limited
number of single well units in a reservoir).
Initially, our gas production activities will be focused in the State of
Kansas. Our drilling and production operations will be subject to, and governed
by, the rules and regulations of the Kansas Corporation Commission. At the
present time, there are no specific regulations which apply only to coalbed
methane gas wells and production, and therefore we must comply with regulations
governing all wells drilled in Kansas. Exceptions to such statewide rules can be
and are frequently granted by the Kansas Corporation Commission in order to
prevent waste and protect correlative rights. Consistent with prior commission
orders, we anticipate requesting certain exceptions (called regulatory orders)
in order to facilitate our project.
Before commencing the drilling of any well in Kansas, we will need to
obtain a drilling permit. Under the current regulations, we will be required to
file a one page notice of intent to drill with the Kansas Corporation Commission
at least five days before we commence drilling. Historically, drilling permits
have been routinely granted by the Kansas Corporation Commission, with permits
denied in limited situations where the well-spacing regulations would be
violated or where fresh water sources would be endangered. In the event that we
would like to drill a well which deviates more than 7 degrees from the vertical,
including horizontally drilled wells, or do anything else that would require an
exception from the current rules, we will be required to file an application for
a regulatory order and give public notice of our application. If no objections
are made to an application within the 15-day statutory comment period, the
Kansas Corporation Commission historically has routinely granted such
applications. Once we obtain a drilling permit, we will be required to comply
with the terms of such permit (such as the depth of the surface casing) and with
well-spacing and proration regulations.
At this early stage in phase two of our plan of operation, we have not
obtained any well drilling permits or any regulatory orders. However, as
specific drill sites are located and development plans determined, the necessary
drilling permits and any required regulatory orders will be obtained. As stated
earlier, historically, such permits and orders have been routinely granted by
the Kansas Corporation Commission. Furthermore, the Kansas Corporation
Commission is presently considering the adoption of special regulations
specifically covering the production of coalbed methane gas, which would
recognize and promote the unique characteristics of such production. We believe
the adoption of these special regulations will further facilitate the
exploration for, and production of, coalbed methane gas.
All wells which we drill and later plug and abandon will be subject to
inspection by and compliance with the rules of the Kansas Corporation
Commission. Violation of any rule or regulation of the commission could result
in monetary penalties and sanctions.
13
Environmental Regulations
Our gas exploration activities will be subject to numerous environmental
and conservation laws and regulations governing almost all facets of these
activities. Matters subject to environmental regulation include:
o permits for drilling operations,
o the location and density of wells,
o the handling of drilling fluids and obtaining discharge permits for
drilling and production operations,
o bonds for ownership, development and production of natural gas and oil
properties,
o transportation of natural gas and oil by pipeline,
o operation of wells and reports concerning operations,
o limitations or prohibitions on drilling activities on protected areas
such as wetlands or wilderness areas,
o remedial measures to mitigate pollution from former operations, such
as plugging abandoned wells, and
o the conservation of oil and natural gas.
Furthermore, the states in which we operate may define the scope of permissible
drilling and exploration activities to prevent pollution by the migration of
extracted materials into the environment, the depletion of reservoirs, the
drilling of unnecessary wells, and damage to neighboring property caused by
blowouts.
Because our initial operations are focused in the State of Kansas, they
will be subject to various Kansas laws and regulations which protect the
environment. We will be liable for all costs associated with the escape of salt
water, oil or refuse resulting from our operations, and we may incur additional
costs associated with protecting fresh water from contamination caused by our
activities. We will be required to properly plug all wells in accordance with
specific rules and regulations and, upon termination of any lease, we will be
required at our expense to remove all equipment and structures and to return the
land to its original contour.
Our operations also may be subject to federal laws and regulations, such as
those of the Environmental Protection Agency, or EPA. For example, the
Endangered Species Act may require us to investigate whether our operations will
result in the taking of any endangered species of fish or wildlife or adversely
affect the habitat of such species, and whether our operations will result in
the removal, damage, or destruction of any endangered species of plant. The
costs of complying with the Act likely would be incurred in investigating and
reporting our activities although additional costs would be incurred if we had
to limit our operations such that no such takings or removals occur.
Other EPA laws and regulations to which our operations may be subject
restrict the emission of air, water, or other pollution, and provide substantial
liability for the remediation of contamination resulting from those omissions.
The Federal Water Pollution Control Act (commonly known as the "Clean Water
Act") prohibits the discharge of pollutants into waters of the United States
unless such discharges are in accordance with a Clean Water Act permit. One or
more of our operations may result in such discharges. The costs of compliance
with the Clean Water Act for any operations that do result in such discharges
would include the costs to obtain and comply with a Clean Water Act permit.
14
The Clean Air Act regulates air emissions from any area, stationery, or
mobile source. One or more pieces of equipment used in our operations may
require a Clean Air Act permit. The cost of compliance with the Clean Air Act
would include the cost of obtaining the permit and the cost of pollution control
devices, if any, required by the permit.
Additionally, our operations may make us subject to the Resource
Conservation and Recovery Act of 1976, or RCRA, which regulates the generation,
transportation, treatment, storage, or disposal of hazardous substances. The
cost of compliance with RCRA would include the cost of obtaining a RCRA permit
and the cost of properly storing and disposing of hazardous substances generated
by our activities. Should any of our operations result in the unpermitted
discharge of a hazardous substance into the air, onto the land, or into the
water, then we may be subject to the Comprehensive Environmental Response,
Compensation, and Liability Act (commonly known as "Superfund"). We then would
be potentially liable for the costs of cleaning up any such discharges. It is
impossible to quantify such contingent costs.
None of the mineral properties that we have leased to date are federally
owned or controlled. If, in the future, we lease or otherwise utilize federal
resources or functions, then we may be subject to other federal environmental
and conservation laws, including the National Environmental Policy Act of 1969
(commonly known as "NEPA"), the National Historic Preservation Act, and the
Archeological and Historic Preservation Act.
Currently, no prior special approvals for our contemplated operations will
be required by state or federal environmental laws or regulations. However,
environmental laws and regulations, both federal and state, are subject to
periodic revisions, which in many instances may lead to even more stringent
regulation of the oil and gas drilling and production industry.
Operational Hazards and Insurance
Our operations will be subject to the usual hazards incident to the
drilling and production of oil and gas, such as blowouts, cratering, explosions,
uncontrollable flows of oil, gas or well fluids, fires, pollution, releases of
toxic gas and other environmental hazards and risks. These hazards can cause
personal injury and loss of life, severe damage to and destruction of property
and equipment, pollution or environmental damage and suspension of operations.
We will obtain and maintain general liability insurance in amounts and on
terms that we consider to be reasonable for our operations and in accordance
with customary industry practices. Such insurance will not cover every potential
risk associated with the drilling, production and processing of oil and gas. In
particular, coverage is not obtainable for all types of environmental hazards.
The occurrence of a significant adverse event, the risks of which are not fully
covered by insurance, could have a material adverse effect on our financial
condition and results of operations. Moreover, no assurance can be given that we
will be able to obtain or maintain adequate insurance at rates we consider
reasonable.
15
Item 2. Description of Property.
In April 2001, we moved our headquarters to 11952 Farley, Shawnee Mission,
Kansas 66213, where we occupy offices in the home of our sole officer and
director at no cost to us. Mr. Ross has agreed to continue this arrangement
until we make other arrangements.
Item 3. Legal Proceedings.
We do not know of any pending or threatened legal proceedings to which we
are a party. We also are not aware of any proceedings being contemplated by
governmental authorities against us.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no items submitted to a vote of security holders during the
fourth quarter of the year ended March 31, 2002.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
(a) Principal Market or Markets. There is no established public market for
our common stock. Our stock does not have a trading symbol and is not currently
listed or quoted on any quotation medium. We have applied for a trading symbol.
(b) Approximate Number of Holders of Common Stock. The number of holders of
record of our common stock as of June 28, 2002, was approximately 61.
(c) Dividends. Holders of our common stock are entitled to receive such
dividends as may be declared by our Board of Directors. We did not declare or
pay any dividends on our common stock during the periods reported herein nor do
we anticipate paying dividends in the foreseeable future.
(d) Securities Authorized for Issuance Under Equity Compensation Plans. The
following table sets forth information regarding our equity compensation plans
as of the most recently completed fiscal year.
Equity # of Securities to be Issued Weighted-Average Exercise # of Securities Remaining
Compensation Upon Exercise of Outstanding Price of Outstanding Available for Future Issuance
Plans: Options, Warrants & Rights Options, Warrants & Rights Under Equity Compensation Plans (1)
------ -------------------------- -------------------------- -----------------------------------
Approved by 0 $0.00 0
security holders
Not approved by 500,000 $0.10/ share 13,410,000 (2)
security holders
(1) Excluding securities issuable upon the exercise of outstanding options,
warrants and rights.
(2) Consists of shares of common stock authorized by our Articles of
Incorporation but not yet issued.
16
Pursuant to an employment agreement entered into with our president as of
April 1, 2002, we granted him options to acquire 500,000 shares of our common
stock at a purchase price of $0.10 per share for a period of five years. The
options immediately vested on April 1, 2002. We have agreed to use our best
efforts to register, on or before June 29, 2002, the shares of common stock
issuable upon exercise of the options. If we terminate our president's
employment with cause, or if he terminates the employment agreement by
resigning, the options will expire six months after such termination.
Item 6. Plan of Operation.
Liquidity and Capital Resources
Our auditors included an explanatory paragraph in their opinion on our
financial statements for the year ended March 31, 2002, to state that our losses
since inception and our net capital deficit at March 31, 2002 raise substantial
doubt about our ability to continue as a going concern. Our ability to continue
as a going concern is dependent upon raising additional capital and achieving
profitable operations. There is no guarantee that our business plans will be
successful in addressing this issue.
During the fiscal year ended March 31, 2002, we spent approximately
$203,839 pursuing potential oil and gas leases in southeast Kansas, including
$40,000 in compensation paid to our president, and $127,105 in legal and
accounting fees. These fees were incurred in connection with negotiating
potential acquisitions, preparing investment documents in connection with our
capital raising efforts, and preparing and filing the registration statement
that was declared effective on April 23, 2002. These expenses were substantially
funded by $223,000 received as proceeds from the sale of our common stock in
April, June and December 2001. In January 2002, we received approximately
$30,000 from the sale of our common stock to overseas investors. At March 31,
2002, we had cash of $5,012, and current liabilities of $83,183.
Due to our lack of funds, we have not yet developed a formal budget for the
next fiscal year. If we are unable to meet a required payment for drilling
leases or well completion, we could suffer a substantial loss of a business
opportunity.
Our Capital Requirements
We will need to raise additional funds to finance our planned operations
during the next 12 months, including implementing phase two of our plan of
operation and making our mineral lease payments as they come due. We anticipate
that we will need a minimum of $200,000 to begin drilling operations ($50,000
for drilling expenses and $150,000 for operating expenses and outstanding
accounts payable) and a total of $850,000 to complete phase two of our plan,
which entails drilling and completing ten coalbed methane gas wells. We intend
to raise these funds through one or more equity or debt offerings, either
private or public, commencing in the second fiscal quarter of 2002.
We currently do not have any binding commitments for, or readily available
sources of, additional financing. There is no guarantee that additional
financing will be available to us when needed or, if available, that it can be
obtained on commercially reasonably terms. If we do not obtain additional
financing we will not be able to implement our planned drilling and exploration
activities and may not be able to maintain our mineral leases. Furthermore, we
could be forced to cease our operations and liquidate our assets.
17
Assuming that we are able to obtain a minimum of $200,000 in additional
financing, we will begin drilling our first well. We will drill and test the
well for gas and, if producible amounts of gas are found, complete the well.
However, unless we receive an additional $60,000 in financing above the $200,000
minimum, we will not be able to install a gathering system and a pipeline tap,
and therefore would not be able to generate any revenues from the well.
Nonetheless, a proven gas reserve would increase the value of our leased mineral
rights considerably and may increase our ability to receive additional financing
to proceed with our phase two drilling activities. In the event that our first
test well does not prove to hold producible reserves, we would have enough
capital to drill and test a second well, but we would need approximately $15,000
in additional financing to complete it. If the second well did not prove to hold
producible reserves, we would be forced to cease our drilling operations until
such time as further financing became available, if ever. If no further
financing became available, we would be forced to cap a producing well or plug a
non-producing well, and cease our operations.
Assuming that we are able to obtain $850,000 in additional financing, we
will be able to drill, test and complete up to ten producing coalbed methane
wells and install the necessary infrastructure to transport our gas from the
wellhead to a gatherer or pipeline. If each well proved to hold producible
amounts of gas, we believe that we could generate revenues relatively quickly.
Completed wells that are producing and connected to pipelines will begin
generating revenues as soon as they begin pumping although these revenues may be
realized on a quarterly basis. In the event that one or more drill sites proves
unproducible, we will complete as many producible wells as possible with the
funds available to us.
In the event that we are able to obtain more than $200,000 but less than
$850,000 in additional financing, we will drill, test, complete and distribute
gas from as many well sites as possible with the amount of capital available to
us.
We estimate that it will take approximately two weeks to drill, test and
complete each well, and an additional two weeks to four weeks per well to
install the facilities to connect to gathering or pipeline facilities, depending
on the distance from the well to the pipeline. With full funding, we expect
phase two to take approximately ten months from start to finish. However, the
timeline for completion of phase two of our plan of operation is completely
dependent upon our ability to secure additional financing. We cannot implement
any of our drilling and exploration plans until we obtain additional financing.
In addition to the capital necessary to commence our drilling activities,
we will need additional financing to make our mineral lease payments as they
come due. From August 2002 to October 2002, we will need approximately $154,000
to make our one-year anniversary payments on our leased properties in southeast
Kansas. Although we have budgeted $75,000 of the $850,000 that we need to
implement phase two to pay some of these lease payments, our plan assumes that
we have begun production prior to this point and thus are producing and selling
sufficient gas to meet our lease payments. Failure to complete enough wells to
generate sufficient income to pay the $154,000 lease payments would require us
to obtain additional financing to retain our mineral leasehold rights. If we
fail to make these payments, we could lose our rights to some or all of the
property currently under lease, which could make further development impossible.
Under these circumstances, we could be forced to cease our operations and
liquidate our assets.
Furthermore, if we decide to exercise our option to lease 4,560 acres in
Blaine County, Montana, we will need an additional $8,600 in June 2002. However,
we currently do not intend to exercise this option.
18
If we do not obtain additional financing through an equity or debt
offering, we may attempt to sell our leasehold interests in some or all of the
properties that we have leased in southeast Kansas together with any proprietary
information that we have developed concerning such properties, such as title
searches, title policies, engineering reports and records, core information,
drilling reports, and production records, if any. However, there is no guarantee
that we will be able to find interested buyers or that the funds received from
any such sale would be adequate to fund our activities.
Item 7. Financial Statements.
The independent auditors' report and the financial statements listed on the
accompanying index at page F-1 of this report are filed as part of this report
and incorporated herein by reference.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
We did not have any disagreements on accounting and financial disclosure
with our present accounting firm during the reporting period.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
(a) Directors and Executive Officers. The names and ages of our current
directors and executive officers are as follows:
Name Age Position Term
---- --- -------- ----
Charles A. Ross, Sr. 62 Director and President April 2001 to
August 2004
Charles A. Ross, Sr. has been our President and a Director since April 10,
2001. Mr. Ross has agreed to devote as much time to our activities as is
required to implement our new plan of operation. In addition to Vista, Mr. Ross
devotes some of his time to a new venture called ICOP Digital, Inc., a
development stage company developing electronic surveillance equipment for law
enforcement agencies.
From January 2001 through March 2001, Mr. Ross was exploring opportunities
in the oil and gas business, which led to his investment in us. From July 1999
until December 2000, he owned and operated a business that supplied recruiting
and business cards to a number of multi-level marketing companies. From June
1998 through July 1999, Mr. Ross was self-employed designing musical instrument
amplifiers, an industry in which he has been involved since the 1960's.
From August 1995 until May 1998, he was the President and CEO and a
director of Edgerton Technology, Inc. and from July 1996 until May 1998 he was
the Chairman of the Board, President, CEO and Treasurer of Edgerton Musical
Amplifiers, Inc. From August 1992 to August 1995, Mr. Ross was a self-employed
consultant and investor.
Other public companies in which Mr. Ross served as an officer or director
include Copilot Electronic Products, Inc. from 1989 to 1992, Birdview Satellite
Communications, Inc. from 1981 to 1986, and Kustom Electronics, Inc. from 1965
to 1973. In 1968 he was named Kansas Small Businessman of the Year by the Small
Business Administration.
19
Our board of directors consists of three directors and we currently have
two vacancies. Under our Articles of Incorporation, our board is evenly divided
into three classes, Class A, Class B and Class C. The initial Class A director,
Mr. Ross, was elected for 3 years. The term of the initial Class B director is 2
years, and the term of the initial Class C director is 1 year. Upon the
expiration of the initial staggered terms, directors will be elected for terms
of three years, to succeed those whose terms have expired. Mr. Ross is actively
seeking additional qualified individuals to serve as directors on our board.
Section 16(a) Beneficial Reporting Compliance
Under U.S. securities laws, directors, executive officers and persons
holding more than 10% of our common stock must report their initial ownership of
the common stock and any changes in that ownership on reports that must be filed
with the SEC and us. The SEC has designated specific deadlines for these reports
and we must identify in this Form 10-KSB those persons who did not file these
reports when due.
Based upon information provided to us by our directors, executive officers
and persons holding more than 10% of our common stock, we believe that there
were no late filings except (i) the initial statement of ownership on Form 3 for
Terrie L. Pham, a principal stockholder, was filed late, (ii) the initial
statement of ownership on Form 3 for Jeffrey P. Frazier, a principal
stockholder, was filed late, and (iii) the initial statement of ownership on
Form 3 for Gary J. Grieco, a principal stockholder, was not filed.
Item 10. Executive Compensation.
The following table sets out the annual compensation paid to our officers
for the last three completed fiscal years. No executive officer of ours received
annual compensation in excess of $100,000 during the last three completed fiscal
years.
Summary Compensation Table
Long-Term Compensation
------------------------------------------------
Annual Compensation Awards Payouts
------------------------------ ----------------------- -----------------------
Securities
Fiscal Other Restricted Underlying
Name and Principal Year Annual Stock Options/ LTIP All Other
Position Ending Salary ($) Bonus ($) Comp. Awards ($) SARs (#) Payouts ($) Comp.($)
-------- ------ ---------- --------- ----- ---------- -------- ----------- --------
Charles Ross, 3/31/02 $40,000 0 0 0 0 0 0
President
George Andrews, 3/31/02 0 0 0 0 0 0 0
former President 3/31/01 0 0 0 0 0 0 0
4/30/00 0 0 0 0 0 0 0
Option Exercises and Values
Pursuant to an employment agreement entered into with Mr. Charles Ross as
of April 1, 2002, we have granted Mr. Ross options to acquire 500,000 shares of
our common stock at a purchase price of $0.10 per share for a period of five
years. The options immediately vested on April 1, 2002. We have agreed to use
our best efforts to register, on or before June 29, 2002, the shares of common
stock issuable upon exercise of the options. If we terminate Mr. Ross'
employment with cause, or if he terminates the employment agreement by
resigning, the options will expire six months after such termination.
20
Long-Term Incentive Plans
We do not have any long-term incentive plans. No retirement, pension,
profit sharing, stock option, insurance programs or other similar programs have
been adopted by us for the benefit of our employees.
Employment Contracts and Termination of Employment Arrangements
Effective as of April 1, 2002, we entered into an employment agreement with
Mr. Charles Ross pursuant to which he will serve as our President and we will
compensate him $30,000 per year for his services. Mr. Ross has agreed to defer
payment of his salary until the earliest to occur of the following events: (i)
we have raised an additional $200,000 in debt or equity capital; (ii) we have
begun generating revenues from operations; (iii) there is a change in control of
the company; or (iv) October 1, 2002. The initial term of employment is from
April 1, 2002, through March 31, 2003, and will be extended automatically for
additional one-year terms unless either party notifies the other of its intent
to not renew at least 30 days before the expiration of the then-current term.
Pursuant to the employment agreement, we will employ Mr. Ross for a minimum
of one year, unless he dies, resigns or becomes disabled, or we terminate the
employment for cause. If we terminate the employment agreement for any other
reason during the first year, he will be entitled to receive his entire first
year salary ($30,000) minus any amounts of first-year salary actually paid on or
before the date of termination. If we terminate the employment agreement for any
other reason during any subsequent year, he is entitled to receive, in addition
to his salary and any prorated bonuses, severance equal to six months' salary
for each full year of employment he has completed for us and continuation of his
employee benefits for a period of six months.
Director Compensation
None of our directors received any compensation during our most recent
fiscal year for serving in their position as directors. If we do have funds
available in the future, we likely will reimburse our directors for expenses
incurred by them in their duties as a director.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information regarding beneficial ownership
as of June 28, 2002, of Vista Exploration Corporation common stock by any person
who we know to be the beneficial owner of more than 5% of our voting securities,
and by each of our directors and executive officers and by our directors and
executive officers as a group. As of June 28, 2002 there were 6,090,000 shares
of our common stock issued and outstanding.
All beneficial owners listed below have sole voting and investment power
with respect to the shares shown, unless otherwise indicated.
21
Name and Address of Common Stock Percent of Class
Beneficial Owner Beneficially Owned (1) Beneficially Owned
---------------- ---------------------- ------------------
Charles A. Ross, Sr., 1,400,000 (2) 21.24%
Director and President
11952 Farley
Shawnee Mission, KS 66213
All directors and executive
officers as a group (1 person): 1,400,000 21.24%
Jeffrey P. Frazier 1,000,000 16.42%
2956 Nova Road
Pine, CO 80470
Gary J. Grieco 1,250,000 20.53%
2856 La Casita Avenue
Las Vegas, NV 89120
Terrie L. Pham 1,000,000 16.42%
16511 E. 27 Terrace
Independence, MO 64055
The Hedge Fund, LLC 360,000 5.91%
Brad Berveri, Managing Member
15139 W. 119th
Overland Park, KS 66062
-------------------
(1) According to Rule 13d-3 under the Securities Exchange Act of 1934, a
beneficial owner of securities includes any person who directly or
indirectly has, or shares, voting power and/or investment power with
respect to such securities. Rule 13d-3 also includes as a beneficial owner
of a security any person who has the right to acquire beneficial ownership
of such security within 60 days through any means, including the exercise
of any option, warrant or conversion of a security. Any securities not
outstanding which are subject to such options, warrants or conversion
privileges are deemed to be outstanding for the purpose of computing the
percentage of outstanding securities of the class owned by such person.
Those securities are not deemed to be outstanding for the purpose of
computing the percentage of the class owned by any other person.
(2) Includes 500,000 shares of common stock issuable upon the exercise of
outstanding options.
Item 12. Certain Relationships and Related Transactions.
On April 11, 1998, we issued a total of 1,000,000 shares of our common
stock to Corporate Management Services, Inc., or CMS, in exchange for services
related to management and organization costs of $500. Mr. George Andrews, our
sole officer and director until April 2001, is the sole director and a 50%
shareholder of CMS. From April 11, 1998, to April 10, 2001, CMS provided us with
administrative and marketing services on an as-needed basis without additional
charge.
Additionally, from our inception to March 31, 2001, we incurred an expense
of $100 per month for rent and other administrative services which were
performed by CMS on our behalf. As of March 31, 2001, we had incurred rent and
administrative service expenses totaling $3,600, which amount has been credited
to additional paid-in capital on our financial statements.
22
From April 11, 1998, to April 10, 2001, CMS advanced to us any additional
funds which we needed for operating capital and for costs in connection with
searching for or completing an acquisition or merger. Such advances were made
without expectation of repayment (other than offsets of earned interest) unless
the owners of a business which we acquired or merged with agreed to repay all or
a portion of such advances. As of March 31, 2001, CMS had advanced a total of
$5,155 to us for legal, accounting, general and administrative expenses, which
amount was treated as an accrued liability on our financial statements but which
was forgiven by CMS as of April 30, 2001. No funds were advanced to us by CMS
subsequent to March 2001.
On or about March 3, 2001, we and CMS entered into an Agreement for the
Purchase of Common Stock with Charles A. Ross, Sr. pursuant to which CMS sold
900,000 shares of our common stock to Mr. Ross for $1,000. Pursuant to that
agreement, on April 10, 2001, Mr. Andrews resigned as our sole officer and
director and Mr. Ross became our sole officer and director.
On June 17, 2001, we acquired a one-year option for a lease on 4,560 acres
in Island Township, Blaine County, Montana from Geominerals Corp. for $1,400.
Geominerals Corp. is controlled by George Andrews, our former president and
director. If we exercise the option, we will pay $2.50 per acre for a total
purchase price of $10,000 (after credit of the amount paid for the option).
However, we currently do not intend to exercise this option.
In anticipation of Mr. Charles Ross' acquisition of shares from CMS, he
advanced to us $10,500 for working capital on February 28, 2001. The advance
carried no interest rate and was payable on demand. We repaid the advance in
April 2001 from the proceeds of our private placement in April 2001. Mr. Ross
also paid travel and administrative expenses totaling $6,115 on our behalf prior
to March 31, 2001, and $18,403 during the fiscal year ended March 31, 2002. Mr.
Ross received reimbursements and advances from us totaling $32,783 during the
fiscal year ended March 31, 2002. The net advance of $8,265 is included in our
financial statements as expenses advanced to an officer at March 31, 2002.
23
Item 13. Exhibits and Reports on Form 8-K.
(a) The following exhibits are furnished as part of this report:
Exhibit No. Description
----------- -----------
3.1 Articles of Incorporation (incorporated by reference to Exhibit
2.1 of the Registration Statement on Form 10-SB filed with the
Commission on September 13, 1999).
3.2 First Articles of Amendment to Articles of Incorporation
(incorporated by reference to Exhibit 3.1 of the Form 8-K filed
August 16, 2001).
3.3 Amended and Restated Bylaws (incorporated by reference to Exhibit
3.2 of the Form 8-K filed August 16, 2001).
10.1 Agreement for the Purchase of Common Stock dated as of February
27, 2001, and effective as of March 3, 2001, by and between
Corporate Management Services, Inc., Bail Corporation and Charles
A. Ross, Sr. (incorporated by reference to Exhibit 7.1 of the
Form 8-K filed March 9, 2001).
10.2 Mutual Release dated as of April 30, 2001, between Bail
Corporation and Corporate Management Services, Inc. (incorporated
by reference to Exhibit 10.2 of the 10-KSB for the period ended
March 31, 2001).
10.3 Agreement dated June 22, 2001, between Bail Corporation, TCC
Royalty Corp. and Austin Exploration L.L.C. regarding Shiloh
Project / Cherokee Basin Coal Bed Methane (incorporated by
reference to Exhibit 10.2 of the 10-KSB for the period ended
March 31, 2001).
10.4 Form of Oil and Gas Lease (incorporated by reference to Exhibit
10.4 to Vista Exploration Corporation's Registration Statement on
Form SB-2 filed with the Commission on March 8, 2002 (file No.
333-65798)).
10.5 Employment Agreement dated as of April 1, 2002, between Vista
Exploration Corporation and Charles A. Ross, Sr. (incorporated by
reference to Exhibit 10.4 to Vista Exploration Corporation's
Registration Statement on Form SB-2 filed with the Commission on
April 23, 2002 (file No. 333-65798)).
10.6 First Amendment to Employment Agreement between Vista Exploration
Corporation and Charles A. Ross, Sr. dated as of June 1, 2002.*
---------
* Filed herewith.
(b) Reports on Form 8-K.
None.
24
VISTA EXPLORATION CORPORATION
(A Development Stage Company)
Index to Financial Statements
Page
----
Report of Independent Auditors.............................................. F-2
Balance Sheet at March 31, 2002............................................. F-3
Statements of Operations for the year ended March 31, 2002,
the eleven months ended March 31, 2001and from
April 9, 1998 (inception) through March 31, 2002....................... F-4
Statement of Changes in Shareholders' Deficit for the period from
April 9, 1998 (inception) through March 31, 2002....................... F-5
Statements of Cash Flows for the year ended March 31, 2002,
the eleven months ended March 31, 2001 and from
April 9, 1998 (inception) through March 31, 2002....................... F-6
Notes to Financial Statements............................................... F-7
F-1
Report of Independent Auditors
To the Board of Directors and Shareholders
Vista Exploration Corporation (formerly Bail Corporation)
We have audited the balance sheet of Vista Exploration Corporation (formerly
Bail Corporation) (a development stage company) as of March 31, 2002 and the
related statements of operations, changes in shareholders' deficit and cash
flows for the year ended March 31, 2002, the eleven months ended March 31, 2001
and for the period from April 9, 1998 (inception) through March 31, 2002. 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. Those standards require that we plan and perform the
audits 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 Vista Exploration Corporation
as of March 31, 2002, and the related statements of operations and cash flows
for the year ended March 31, 2002, the eleven months ended March 31, 2001 and
for the period from April 9, 1998 (inception) through March 31, 2002 in
conformity with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has incurred losses since inception and has a net
capital deficit at March 31, 2002. These factors raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans
regarding those matters are also described in Note 1. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Cordovano and Harvey, P.C.
------------------------------
Cordovano and Harvey, P.C.
Denver, Colorado
June 30, 2002
F-2
VISTA EXPLORATION CORPORATION
(A Development Stage Company)
Balance Sheet
Assets
Current assets:
Cash ......................................................... $ 5,012
Due from related party (Note 2) .............................. 8,265
Other assets:
Oil and gas properties, at cost .............................. 40,832
---------
$ 54,109
=========
Liabilities and Shareholders' Deficit
Liabilities:
Accounts payable and accrued liabilities ..................... $ 83,183
---------
Total liabilities .............................. 83,183
---------
Shareholders' deficit (Note 4):
Preferred stock, no par value; authorized 5,000,000 shares,
issued and outstanding -0- shares ......................... --
Common stock, no par value; authorized 20,000,000 shares,
issued and outstanding 6,090,000 shares ................... 220,216
Additional paid-in capital ................................... 3,600
Deficit accumulated during development stage ................. (252,890)
---------
Total shareholders' deficit .................... (29,074)
---------
$ 54,109
=========
See accompanying notes to financial statements
F-3
VISTA EXPLORATION CORPORATION
(A Development Stage Company)
Statements of Operations
Eleven April 9, 1998
Months (Inception)
Year Ended Ended Through
March 31, March 31, March 31,
2002 2001 2002
----------- ----------- -----------
Costs and expenses:
Legal fees ............................. $ 116,455 $ 1,492 $ 120,350
Accounting fees ........................ 10,650 2,750 16,401
Travel ................................. 26,305 5,339 31,644
Rent, related party (Note 2) ........... -- 1,100 3,600
Organization costs ..................... -- -- 500
Other general and administrative ....... 55,763 920 56,762
Project evaluation costs ............... 28,902 -- 28,902
----------- ----------- -----------
Total costs and expenses (238,075) (11,601) (258,159)
----------- ----------- -----------
Other revenue and expense:
Interest income ........................ -- 8 114
----------- ----------- -----------
Loss before income taxes and
extraordinary gain ............... (238,075) (11,593) (258,045)
Income tax provision (Note 3) .............. -- -- --
----------- ----------- -----------
Extraordinary gain on extinguishment of debt
net of income taxes of $-0- (Note 1) ... -- 5,155 5,155
----------- ----------- -----------
Net loss ............... $ (238,075) $ (6,438) $ (252,890)
=========== =========== ===========
Basic and diluted loss per share:
Before extraordinary item .............. $ (0.04) $ (0.01)
=========== ===========
Gain on extinguishment of debt ......... $ -- $ --
=========== ===========
Net loss ............................... $ (0.04) $ --
=========== ===========
Weighted average common shares outstanding . 5,375,233 1,230,000
=========== ===========
See accompanying notes to financial statements
F-4
VISTA EXPLORATION CORPORATION
(A Development Stage Company)
Statement of Changes in Shareholders' Deficit
Deficit
Accumulated
Preferred Stock Common Stock Additional During
--------------------- --------------------- Paid-in Development
Shares Amount Shares Amount Capital Stage Total
--------- --------- --------- --------- --------- --------- ---------
Balance at inception,
April 9, 1998 .......................... -- $ -- -- $ -- $ -- $ -- $ --
April 1998, common stock issued in
exchange for services and organizational
costs (Note 2) ......................... -- -- 1,000,000 500 -- -- 500
Contributed rent (Note 2) .................. -- -- -- -- 100 -- 100
Net loss ............................ -- -- -- -- -- (688) (688)
--------- --------- --------- --------- --------- --------- ---------
Balance at
April 30, 1998 ......................... -- -- 1,000,000 500 100 (688) (88)
May 1998, sale of common stock net of
offering costs of $127 (Note 2) ........ -- -- 230,000 2,173 -- -- 2,173
Contributed rent (Note 2) .................. -- -- -- -- 1,200 -- 1,200
Net loss ............................ -- -- -- -- -- (2,420) (2,420)
--------- --------- --------- --------- --------- --------- ---------
Balance at
April 30, 1999 ......................... -- -- 1,230,000 2,673 1,300 (3,108) 865
Contributed rent (Note 2) .................. -- -- -- -- 1,200 -- 1,200
Net loss ............................ -- -- -- -- -- (5,269) (5,269)
--------- --------- --------- --------- --------- --------- ---------
Balance at
April 30, 2000 ......................... -- -- 1,230,000 2,673 2,500 (8,377) (3,204)
Contributed rent (Note 2) .................. -- -- -- -- 1,100 -- 1,100
Net loss for the eleven months
ended March 31, 2001 .............. -- -- -- -- -- (6,438) (6,438)
--------- --------- --------- --------- --------- --------- ---------
Balance at
March 31, 2001 ......................... -- -- 1,230,000 2,673 3,600 (14,815) (8,542)
April 2001, sale of common stock,
$.01 per share (Note 4) ................ -- -- 3,300,000 33,000 -- -- 33,000
June 2001, sale of common stock,
$.10 per share (Note 4) ................ -- -- 750,000 75,000 -- -- 75,000
June 2001, sale of common stock,
$.25 per share (Note 4) ................ -- -- 360,000 90,000 -- -- 90,000
December 2001, sale of common stock,
$.10 per share (Note 4) ................ -- -- 250,000 25,000 -- -- 25,000
January 2002, sale of common stock,
$.15 per share (Note 4) ................ -- -- 200,000 30,000 -- -- 30,000
Offering costs incurred (Note 4) ........... -- -- -- (35,457) -- (35,457)
Net loss ............................ -- -- -- -- -- (238,075) (238,075)
--------- --------- --------- --------- --------- --------- ---------
Balance at
March 31, 2002 ......................... -- $ -- 6,090,000 $ 220,216 $ 3,600 $(252,890) $ (29,074)
========= ========= ========= ========= ========= ========= =========
See accompanying notes to financial statements
F-5
VISTA EXPLORATION CORPORATION
(A Development Stage Company)
Statements of Cash Flows
Eleven April 9, 1998
Months (Inception)
Year Ended Ended Through
March 31, March 31, March 31,
2002 2001 2002
--------- --------- ---------
Cash flows from operating activities:
Net loss ................................................................... $(238,075) $ (6,438) $(252,890)
Adjustments to reconcile net loss to net cash
used in operating activities:
Common stock issued for services (Note 2) ............................. -- -- 500
Contributed rent (Note 2) ............................................. -- 1,100 3,600
Changes in operating assets and liabilities:
Accounts payable and accrued liabilities ......................... 75,068 4,644 83,183
Interest income receivable ....................................... -- 106 --
--------- --------- ---------
Net cash used in
operating activities .................................... (163,007) (588) (165,607)
--------- --------- ---------
Cash flows from investing activities:
Investment in oil and gas properties ....................................... (40,832) -- (40,832)
Advance to related party (Note 2) .......................................... (8,265) -- (8,265)
--------- --------- ---------
Net cash used in
investing activities .................................... (49,097) -- (49,097)
--------- --------- ---------
Cash flows from financing activities:
Advances from officer (Note 2) ............................................. (10,500) 10,500 --
Sale of common stock (Note 4) .............................................. 253,000 -- 255,300
Offering costs incurred .................................................... (25,457) (10,000) (35,584)
--------- --------- ---------
Net cash provided by
financing activities .................................... 217,043 500 219,716
--------- --------- ---------
Net change in cash ...................................... 4,939 (88) 5,012
Cash, beginning of period .................................................. 73 161 --
--------- --------- ---------
Cash, end of period ........................................................ $ 5,012 $ 73 $ 5,012
========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes ............................................................ $ -- $ -- $ --
========= ========= =========
Interest ................................................................ $ -- $ -- $ --
========= ========= =========
Non-cash financing activities:
Extraordinary gain on the extinguishment
of debt (Note 1) ...................................................... $ -- $ 5,155 $ 5,155
========= ========= =========
See accompanying notes to financial statements
F-6
VISTA EXPLORATION CORPORATION
(A Development Stage Company)
Notes to Financial Statements
(1) Summary of Significant Accounting Policies
Organization and Basis of Presentation
Vista Exploration Corporation (the "Company") (formerly Bail Corporation) was
incorporated under the laws of Colorado on April 9, 1998 to engage in any lawful
corporate undertaking. The Company is a development stage enterprise in
accordance with Statement of Financial Accounting Standard (SFAS) No. 7. The
Company was originally formed as a "blank check" company with the purpose to
evaluate, structure and complete a merger with, or acquisition of, a privately
owned corporation. Effective March 3, 2001, approximately 73 percent (900,000
shares) of the Company's issued and outstanding common stock was sold, resulting
in a change in control of the Company. The Company's new business plan is to
engage in the oil and gas business by acquiring oil and gas properties and
developing those properties and/or purchasing producing properties principally
located in the mid-western and western United States.
The Company has completed its leasing activities in southeast Kansas and will
have to obtain additional financing before it can implement the next phase of
its current plan of operation, which will involve identifying the most promising
and cost-effective drill sites on the Company's leased acres, drilling and
testing wells to prove reserves, completing promising test wells, extracting the
oil, gas and other hydrocarbons that the Company finds, and delivering them to
market. The Company anticipates that it will need approximately $850,000 to
achieve its initial goal of drilling, testing and completing ten coalbed methane
gas producing wells.
Following the change in control, the Company sold 4,860,000 shares of its no par
value common stock through three private offerings for net proceeds of $217,543
after deducting offering costs of $35,457 (see Note 5). The Company intends to
use the net proceeds from those offerings for administrative and professional
fees required to transition the business and to acquire oil and gas properties
and develop a drilling program. The Company will require additional funds to
commence drilling operations and there are no commitments in place for any
additional funds.
During August 2001, the Company changed its name from Bail Corporation to Vista
Exploration Corporation.
During the period from April 9, 1998 (inception) through February 28, 2001,
Corporate Management Services, Inc. ("CMS"), an affiliate and previous majority
shareholder, paid professional fees and administrative expenses on behalf of the
Company totaling $5,155, which was unpaid as of February 28, 2001. As part of
the stock purchase agreement that resulted in the change in control, CMS
released the Company from its obligation to repay the $5,155. The $5,155 is
included in the accompanying statements of operations as extraordinary gain on
extinguishment of debt.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company is in the development
stage. It has incurred losses since inception and has a net capital deficit at
March 31, 2002. These factors, among others, may indicate that the Company will
be unable to continue as a going concern for a reasonable period of time.
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern. The Company's continuation
as a going concern is dependent upon its ability to generate sufficient cash
flow to meet its obligations on a timely basis and ultimately to attain
profitability. The Company raised gross proceeds of $253,000, through private
stock offerings during FY 2002 (see Note 5), to fund its operations. However,
the Company believes it will need additional capital to develop the property
leases discussed above. There is no assurance that the Company will obtain the
additional capital or that it will attain profitability.
F-7
VISTA EXPLORATION CORPORATION
(A Development Stage Company)
Notes to Financial Statements
On April 18, 2001, the Company changed its year-end from April 30 to March 31.
The accompanying statements of operations, changes in shareholders' deficit and
cash flows reflect the eleven-month transition period ended March 31, 2001.
Cash Equivalents
The Company considers all highly liquid securities with original maturities of
three months or less when acquired to be cash equivalents. The Company had no
cash equivalents at March 31, 2002.
Financial Instruments
The Company has determined, based on available market information and
appropriate valuation methodologies, the fair values of its financial
instruments approximate carrying values. The carrying amounts of cash, accounts
payable, and other current liabilities approximate fair value due to the
short-term maturity of the instruments.
Use of estimates
The preparation of the financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect certain reported amounts of assets and liabilities;
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. Accordingly, actual results could differ from those estimates.
Organization costs
Costs related to the organization of the Company have been expensed as incurred.
Deferred offering costs
Costs related to common stock offerings are recorded initially as a deferred
asset until the offering is successfully completed, at which time they are
recorded as a reduction of gross proceeds in shareholders' deficit. If an
offering is not successful, the costs are charged to operations at that time.
Oil and gas properties
The Company follows the full cost method of accounting for oil and gas
properties. Accordingly, all costs associated with acquisition, exploration, and
development of oil and gas reserves, including directly related overhead costs,
are capitalized. No internal overhead costs have been capitalized to date.
All capitalized costs of oil and gas properties, including the estimated future
costs to develop proved reserves, are amortized on the unit-of-production method
using estimates of proved reserves. Investments in unproved properties and major
development projects are not amortized until proved reserves associated with the
projects can be determined or until impairment occurs. If the results of an
assessment indicate that the properties are impaired, the amount of the
impairment is added to the capitalized costs to be amortized.
The capitalized costs are subject to a "ceiling test," which limits capitalized
costs to the aggregate of the "estimated present value," discounted at a
10-percent interest rate, of future net revenues from proved reserves (based on
current economic and operating conditions), plus the lower of cost or fair
market value of unproved properties.
Sales of proved and unproved properties are accounted for as adjustments of
capitalized costs with no gain or loss recognized, unless such adjustments would
significantly alter the relationship between capitalized costs and proved
reserves of oil and gas, in which case the gain or loss is recognized in income.
Abandonment's of properties are accounted for as adjustments of capitalized
costs with no loss recognized.
F-8
VISTA EXPLORATION CORPORATION
(A Development Stage Company)
Notes to Financial Statements
As of March 31, 2002, the Company had executed 115 separate leases totaling
approximately 15,388 acres, of which approximately 13,902 acres are located in
Coffey County and approximately 1,486 acres are in Lyon County, which adjoins
Coffey County.
Loss per common share
The Company reports loss per share using a dual presentation of basic and
diluted loss per share. Basic loss per share excludes the impact of common stock
equivalents. Diluted loss per share uses the average market price per share when
applying the treasury stock method in determining common stock equivalents.
However, the Company has a simple capital structure for the period presented
and, therefore, there is no variance between the basic and diluted loss per
share.
Income Taxes
The Company reports income taxes in accordance with SFAS No. 109, "Accounting
for Income Taxes", which requires the liability method in accounting for income
taxes. Deferred tax assets and liabilities arise from the difference between the
tax basis of an asset or liability and its reported amount on the financial
statements. Deferred tax amounts are determined by using the tax rates expected
to be in effect when the taxes will actually be paid or refunds received, as
provided under currently enacted law. Valuation allowances are established when
necessary to reduce the deferred tax assets to the amounts expected to be
realized. Income tax expense or benefit is the tax payable or refundable,
respectively, for the period plus or minus the change during the period in the
deferred tax assets and liabilities.
Stock based Compensation
The Company accounts for stock-based compensation arrangements in accordance
with Statement of financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," which permits entities to recognize as expense
over the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 allows entities to continue to apply the
provisions of Accounting Principle Board ("APB") Opinion No. 25 and provide pro
forma net earnings (loss) disclosures for employee stock option grants as if the
fair-value-based method defined in SFAS No. 123 had been applied. The Company
has elected to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS No. 123.
(2) Related Party Transactions
During the year ended March 31, 2002, an officer paid travel and administrative
expenses totaling $18,403 on behalf of the Company. The company owed the officer
$6,115 at March 31, 2001. The Company repaid the $24,518 and advanced the
officer an additional $8,265. The advance is expected to be offset against
future travel expenses. The $8,265 is included in the accompanying financial
statements as due from related party.
The Company incurred an expense of $100 per month through March 31, 2001 for
office space contributed by Corporate Management Services, Inc. ("CMS"), an
affiliate of the Company. The Company reported rent expense of $-0-, $1,100, and
$3,600, respectively, for the year ended March 31, 2002, the eleven months ended
March 31, 2001, and the period from April 9, 1998 (inception) through March 31,
2002. The rent expense has been offset by charges to additional paid-in capital.
From July 2001 to November 2001, the Company leased office space in Burlington,
Kansas at $350 per month.
On February 28, 2001, an officer advanced the Company $10,500 for working
capital. The advance carries no interest rate and was payable on demand. The
Company repaid the advance during the year ended March 31, 2002.
The officer also paid travel and administrative expenses totaling $6,115 on
behalf of the Company during the eleven months ended March 31, 2001.
F-9
VISTA EXPLORATION CORPORATION
(A Development Stage Company)
Notes to Financial Statements
On April 11, 1998, the Company issued an affiliate 1,000,000 shares of common
stock in exchange for services related to management and organization costs of
$500. The affiliate provided administrative and marketing services as needed.
The affiliate, from time to time, advanced the Company any additional funds that
the Company needed for operating capital and for costs in connection with
searching for or completing an acquisition or merger.
During 1998, the Company sold 230,000 shares of common stock in a private
placement for $2,300. The private placement also included the offering of common
shares in nineteen other corporations. The costs related to the offering and
certain legal fees and general and administrative fees were allocated to each of
the twenty companies participating in the offering. The Company's pro rate one
twentieth share of the costs and expenses were deducted from the gross proceeds
from the sale of the Company's common shares. The gross proceeds of $2,300 were
transferred to the Company net of offering costs of $127 and certain general and
administrative costs incurred by the affiliate of $89.
(3) Income Taxes
Following are reconciliations of U.S. statutory federal income tax rate to the
effective rate:
Eleven
Year Ended Months ended
March 31, March 31,
2002 2001
------ ------
U.S. statutory federal rate ....................... 31.62% 15.00%
State income tax rate, net of federal benefit ..... 3.17% 4.04%
Net operating loss (NOL) for which no tax
benefit is currently available ................ -34.79% -19.04%
------ ------
0.00% 0.00%
====== ======
The valuation allowance offsets the net deferred tax asset for which there is no
assurance of recovery. The changes in the valuation allowance for the year ended
March 31, 2002, the eleven months ended March 31, 2001, and for the period from
April 9, 1998 (inception) through March 31, 2001 were $82,823, $1,226, and
$85,306, respectively. Net operating loss carryforwards at March 31, 2002 will
expire through 2022.
The valuation allowance will be evaluated at the end of each year, considering
positive and negative evidence about whether the asset will be realized. At that
time, the allowance will either be increased or reduced; reduction could result
in the complete elimination of the allowance if positive evidence indicates that
the value of the deferred tax asset is no longer impaired and the allowance is
no longer required.
Should the Company undergo an ownership change, as defined in Section 382 of the
Internal Revenue Code, the Company's tax net operating loss carryforwards
generated prior to the ownership change will be subject to an annual limitation
which could reduce or defer the utilization of those losses.
(4) Shareholders' Deficit
The preferred stock may be issued in series as determined by the Board of
Directors. As required by law, each series must designate the number of share in
the series and each share of a series must have identical rights of (1)
dividend, (2) redemption, (3) rights in liquidation, (4) sinking fund provisions
for the redemption of the share, (5) terms of conversion and (6) voting rights.
During January 2002, the Company sold 200,000 shares of its no par value common
stock for $.15 per share pursuant to an exemption from registration claimed
under Rule 506 of Regulation D of the Securities Act of 1933, as amended (the
"Act"). The Company received net proceeds of $28,408 after deducting offering
costs totaling $1,592.
F-10
VISTA EXPLORATION CORPORATION
(A Development Stage Company)
Notes to Financial Statements
During December 2001, the Company sold 250,000 shares of its no par value common
stock for $.10 per share pursuant to an exemption from registration claimed
under Rule 506 of Regulation D of the Act. The Company received net proceeds of
$21,592 after deducting offering costs totaling $3,303.
During June of 2001, the Company conducted a private placement offering of
1,000,000 shares of its no par value common stock for $.25 per share pursuant to
an exemption from registration claimed under Rule 506 of Regulation D of the
Act. The Company closed the offering after selling 360,000 shares. The Company
received net proceeds of $79,812 after deducting offering costs totaling
$10,188.
During June of 2001, the Company conducted a private placement offering of
800,000 shares of its no par value common stock for $.10 per share pursuant to
an exemption from registration claimed under Rule 506 of Regulation D of the
Act. The Company closed the offering after selling 750,000 shares. The Company
received net proceeds of $64,813 after deducting offering costs totaling
$10,187.
During April 2001, the Company conducted a private placement offering of
5,000,000 shares of its no par value common stock for $.01 per share pursuant to
an exemption from registration claimed under Rule 506 of Regulation D of the
Act. The Company closed the offering after selling 3,300,000 shares. The Company
received net proceeds of $22,813 after deducting offering costs totaling
$10,187.
(5) Subsequent Event-Employment Agreement with Stock Option Grant
Pursuant to the terms of an employment agreement dated April 1, 2002, the
Company committed to pay a base salary of $30,000 per year to its president.
Payment of the salary may be deferred for a period of six months, depending on
the financial status of the Company. In addition, the president of the Company
was granted an option to purchase 500,000 shares of the Company's common stock
at $.10 per share. The option expires on March 31, 2007.
F-11
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
VISTA EXPLORATION CORPORATION
Date: July 1, 2002 By: /s/ Charles A. Ross, Sr.
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Charles A. Ross, Sr., chief executive officer
and principal financial and accounting officer
Pursuant to the requirements of the Securities Act of 1933, this report has been
signed by the following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Charles A. Ross, Sr. Director July 1, 2002
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Charles A. Ross, Sr.