U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended: June 30, 2006
OR
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
MAJESTIC OIL & GAS INC.
(Name of small business issuer in its charter)
20-3955577
(I.R.S. employer identification number)
P.O Box 488 Cut Bank, Montana 59427
(Address of principal executive offices) (Zip code)
Issuer's telephone number: 406-873-5580
SEC File Number: File No. 333-127813
Check whether the issuer: (1) filed all reports required to be filed by
Section13 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 |_|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes |_| No |X|
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 6,240,000 shares of common stock
outstanding as of August 8, 2006.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
TABLE OF CONTENTS
PART I - Financial Information.............................................. 3
Item 1. Financial Statements................................................ 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 9
Item 3. Controls and Procedures............................................. 14
PART II - OTHER INFORMATION................................................. 14
Item 1. Legal Proceedings................................................... 14
Item 2. Changes in Securities............................................... 14
Item 3. Defaults upon Senior Securities..................................... 14
Item 4. Submission of Matters to a Vote of Security Holders................. 14
Item 5. Other Information................................................... 14
Item 6. Exhibits............................................................ 15
PART I - Financial Information
Item 1. Financial Statements
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial reporting
and pursuant to the rules and regulations of the Securities and Exchange
Commission ("Commission"). While these statements reflect all normal recurring
adjustments which are, in the opinion of management, necessary for fair
presentation of the results of the interim period, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. For further information, refer to
the financial statements and footnotes thereto, contained in the Majestic Oil &
Gas's latest registration statement filed with the Commission on Form SB-2/A.
Majestic Oil & Gas, Inc (A Development Stage Company)
Condensed Consolidated Balance Sheets
June 30
2006 December 31
UNAUDITED 2005
--------- -----------
ASSETS
Cash and cash equivalents $ 188,521 $ 162,732
Trade receivables 4,818 32,709
--------- ---------
Total Current Assets 193,339 195,441
--------- ---------
PROPERTY AND EQUIPMENT Oil and gas properties, using the full cost method of
accounting:
Properties being amortized 192,187 192,187
Less accumulated depletion, amortization and impairment (44,000) (34,000)
--------- ---------
Net Property and Equipment 148,187 158,187
--------- ---------
Total Assets $ 341,526 $ 353,628
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 7,159 $ 9,669
Common stock, no par value-
Authorized Shares - 100,000,000
Issued & Outstanding: 6,240,000 shares $ 624,000 $ 624,000
(Deficit) accumulated during the development stage (289,633) (280,041)
--------- ---------
$ 341,526 $ 353,628
========= =========
3
Majestic Oil & Gas, Inc (A Development Stage Company)
Condensed Consolidated Statements of Operations
Three Months Three Months Six Months Six Months Inception
Ended Ended Ended Ended (April 16, 2002)
June 30, 2006 June 30, 2005 June 30, 2006 June 30, 2005 To June 30, 2006
UNAUDITED UNAUDITED UNAUDITED UNAUDITED UNAUDITED
----------- ----------- ----------- ----------- -----------
REVENUE $ 9,686 $ 28,145 $ 27,532 $ 58,215 $ 234,212
----------- ----------- ----------- ----------- -----------
EXPENSES
Administrative staff 1,719 1,714 3,334 3,329 11,753
Organization expenses -- -- -- -- 301,115
Taxes & royalties 2,435 7,075 3,293 14,634 61,563
Well operating fees 250 1,308 500 1,710 5,544
Legal, accounting and filing fees 4,742 75 17,572 500 57,012
Consulting -- -- -- -- 28,000
Engineering -- -- -- -- 1,500
Travel -- -- -- -- 2,699
Depletion and amortization 5,000 5,000 10,000 10,000 44,000
Transfer Agent Fees 450 450 900 600 6,283
Bank Charges -- -- -- -- 358
Field expenses 611 -- 829 -- 1,490
Office Expenses -- 127 275 367 907
Phone and utilities 203 178 421 364 1,707
Currency exchange (gain) loss -- -- -- -- (86)
----------- ----------- ----------- ----------- -----------
15,409 15,926 37,124 31,503 523,845
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (5,723) 12,219 $ (9,592) 26,712 $ (289,633)
=========== =========== =========== =========== ===========
EARNINGS PER SHARE
Net Income, basic and diluted $ (0.00) $ 0.00 $ (0.00) $ 0.00
=========== =========== =========== ==========
Weighted average number of shares
outstanding 6,240,000 6,240,000 6,240,000 6,240,000
Diluted potential shares -
stock warrants -- -- -- --
----------- ----------- ----------- ----------
Adjusted weighted average shares 6,240,000 6,240,000 6,240,000 6,240,000
=========== =========== =========== ==========
4
Majestic Oil & Gas, Inc ( A Development Stage Company)
Condensed Consolidated Statements of Stockholders' Equity
(Deficit)
Accumulated
Common Stock During
-------------------------- Development
Shares Amount Stage Total
--------- --------- --------- ---------
BEGINNING BALANCE, INCEPTION
(APRIL 16, 2002) TO
DECEMBER 31, 2003 -- $ -- $ -- $ --
Common stock issued 4,205,000 420,500 -- 420,500
Net loss -- -- (360,144) (360,144)
BALANCE, DECEMBER 31, 2003 4,205,000 420,500 (360,144) 60,356
Common stock issued 2,035,000 203,500 -- 203,500
Net income -- -- 13,722 13,722
--------- --------- --------- ---------
BALANCE, DECEMBER 31, 2004 6,240,000 624,000 (346,422) 277,578
Common stock issued -- -- -- --
Net income -- -- 66,381 66,381
--------- --------- --------- ---------
BALANCE, DECEMBER 31, 2005 6,240,000 624,000 (280,041) 343,959
Common stock issued -- -- -- --
Net loss for the six months
ended June 30, 2006 (UNAUDITED) -- -- (9,592) (9,592)
--------- --------- --------- ---------
BALANCE, JUNE 30, 2006 6,240,000 $ 624,000 $(289,633) $ 334,367
========= ========= ========= =========
5
Majestic Oil & Gas, Inc (A Development Stage Company)
Condensed Consolidated Statements of Cash Flows
INCEPTION
SIX MONTHS SIX MONTHS (APRIL 16, 2002)
ENDED ENDED THROUGH
JUNE 30, 2006 JUNE 30, 2005 TO JUNE 30, 2006
UNAUDITED UNAUDITED UNAUDITED
---------------- ---------------- ----------------
OPERATING ACTIVITIES
Net income (loss) $ (9,592) $ 26,712 $ (289,633)
Changes and credits to net income (loss)
not affecting cash
Depletion and amortization 10,000 10,000 44,000
Organizational expenses paid with
stock -- -- 300,000
Legal fees paid with stock -- -- 25,000
Changes in assets and liabilities
Trade receivables 27,891 27,275 (4,818)
Production taxes and royalties payable (2,510) 9,048 7,159
Other -- -- --
---------------- ---------------- ----------------
NET CASH FROM (USED FOR)
OPERATING ACTIVITIES 25,789 73,035 81,708
---------------- ---------------- ----------------
INVESTING ACTIVITIES
Additions to property and equipment -- -- (32,187)
---------------- ---------------- ----------------
NET CASH USED FOR INVESTING
ACTIVITIES -- -- (32,187)
---------------- ---------------- ----------------
FINANCING ACTIVITIES
Proceeds from issuance of stock -- -- 139,000
---------------- ---------------- ----------------
NET CASH USED FROM FINANCING
ACTIVITIES -- -- 139,000
---------------- ---------------- ----------------
NET CHANGE IN CASH AND CASH
EQUIVALENTS 25,789 73,035 188,521
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 162,732 53,663 --
---------------- ---------------- ----------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 188,521 $ 126,698 $ 188,521
================ ================ ================
6
Notes to Unaudited June 30, 2006 Financial Statements:
Note 1 - Business Activity and Significant Accounting Policies
Principle Business Activity
Majestic Oil & Gas, Inc. (Company) is a development stage enterprise and its
operations consist of oil and natural gas development and production in the
Rocky Mountain region. The financial statements and notes to the financial
statements are the representation of the Company's management, who is
responsible for their integrity and objectivity. The accounting polices of the
Company are in accordance with generally accepted accounting principles and
conform to the standards applicable to development stage enterprises. These
interim financial statements include all necessary adjustments which in the
opinion of management are necessary in order to make the financial statements
not misleading.
Going Concern
The Company is in the development stage and has incurred losses since its
inception that have resulted in an accumulated deficit. Also, management of the
Company believes it will require additional financing that it has not yet
secured in order to emerge from the development stage. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management intends to vigorously pursue financing either from creditors or from
a future stock offering. However, such financing may not occur, or if it does
occur, may not raise sufficient funds to emerge from the development stage.
Cash Equivalents
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
Trade Receivables
The Company is subject to credit risk associated with the purchases of its
produced natural gas. Exposure to this risk is controlled through credit
approvals and monitoring procedures. Collateral is not required. The Company
believes all trade receivables currently outstanding are collectible,
accordingly, no allowance for doubtful accounts has been established.
Oil & Gas Properties
The Company utilizes the full cost method of accounting for oil and gas
properties. Accordingly, all costs associated with the acquisition, exploration
and development of oil and gas reserves (including costs of abandoned
leaseholds, delay lease rentals, dry hole costs, geological and geophysical
costs, certain internal costs associated directly with acquisition, drilling and
well equipment inventory, exploration and development activities, estimated
dismantlement and abandonment costs, site restoration and environmental exit
costs, etc.) are capitalized.
All capitalized costs of oil and gas properties, net of estimated salvage
values, plus 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.
In addition, the capitalized costs are subject to a "ceiling test" which
basically limits such 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.
Gains or losses are not recognized upon the sale or other disposition of oil and
gas properties, except in extraordinary transactions.
Revenue Recognition
Revenue from the sale of oil and gas production is recognized when deliveries
occur.
7
Note 2 - Organization and Development of the Company
The Company was formed on April 16, 2002 as a corporation. The Company is a
development stage enterprise and it is management's intention that operations
will ultimately consist of oil and natural gas development and production in the
Rocky Mountain region. The accompanying financial statements reflect
organizational activities and limited oil and gas development and production
activities and they are not necessarily indicative of what the financial
statements will reflect once the intended operations of the Company are fully
underway.
The Company has registered with the Securities and Exchange Commission and
intends to trade its outstanding shares of stock on the OTC Bulletin Board.
Approval of the Company's registration statement has occurred, but trading of
its outstanding shares of stock on the OTC Bulletin Board has not yet occurred
and there is no guarantee that the shares will be quoted and traded on the OTC
Bulletin Board or any other public exchange.
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
The following discussion and analysis is provided to increase the understanding
of, and should be read in conjunction with, the Financial Statements of the
Company and Notes thereto included elsewhere in this Report. Historical results
and percentage relationships among any amounts in these financial statements are
not necessarily indicative of trends in operating results for any future period.
The statements, which are not historical facts contained in this Report,
including this Plan of Operations, and Notes to the Financial Statements,
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements are based on currently
available operating, financial and competitive information, and are subject to
various risks and uncertainties. Future events and the Company's actual results
may differ materially from the results reflected in these forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, dependence on existing and future key strategic and strategic
end-user customers, limited ability to establish new strategic relationships,
ability to sustain and manage growth, variability of operating results, the
Company's expansion and development of new service lines, marketing and other
business development initiatives, the commencement of new engagements,
competition in the industry, general economic conditions, dependence on key
personnel, the ability to attract, hire and retain personnel who possess the
technical skills and experience necessary to meet the service requirements of
its clients, the potential liability with respect to actions taken by its
existing and past employees, risks associated with international sales, and
other risks described herein and in the Company's other SEC filings.
9
The safe harbors of forward-looking statements provided by Section 21E of the
Exchange Act are unavailable to issuers of penny stock. As we issued securities
at a price below $5.00 per share, our shares are considered penny stock and such
safe harbors set forth under the Reform Act are unavailable to us.
The following discussion of our financial condition and results of operations
should be read in conjunction with the Financial Statements and Notes to the
Condensed Consolidated Financial Statements appearing elsewhere in this report.
Business Development
We were incorporated in Nevada on April 16, 2002 as M2 Group Energy Corporation
and on June 21, 2004, we changed our name to Majestic Oil & Gas, Inc. We are
authorized to issue 100,000,000 shares of common stock of which 6,240,000 shares
are outstanding.
We, through our wholly-owned subsidiary, Grizzly Energy, Inc., own a 25% working
interest in a producing gas well on a state of Montana lease located in Section
36-T29N-R5W, Pondera County, Montana (Ludwig/State #36-1). It currently has gas
reserves of 95.04 million cubic feet of Proved Net Producing Reserves, which are
reserves established based upon actual production. Net Reserves are gross
reserves less taxes, royalties and all expenses.
Majestic Oil & Gas, Inc participated in the drilling of the Boucher 27-1 with
Altamont and our 33% of the proportionate share of the drilling and completion
costs were $32,186.67. For this expenditure, we earned a 25% working interest.
The Boucher 27-1 well is located in Section 27-T29N-5W, Pondera County, Montana.
This well currently has gas reserves of 96.40 million cubic feet of Proved Net
Producing Reserves.
Grizzly Energy acquired the 25% working interest from Altamont Oil and Gas,
Inc., a Montana corporation and an affiliate of our President, Mr. Patrick
Montalban, in July 2004 for 16,000 shares of Grizzly Energy common stock. Mr.
Patrick Montalban owns and manages Altamont Oil and Gas, Inc. Mr. Patrick
Montalban owns and manages Grizzly Energy, Inc. Thereafter in July 2004,
Majestic Oil & Gas, Inc. acquired all 16,000 issued and outstanding shares of
Grizzly Energy, Inc. common stock for the issuance of 1,600,000 shares of our
common stock. Prior to the sale to Majestic Oil & Gas, Inc, Altamont Oil & Gas,
Inc incurred an expense of $120,000 in the acquisition of a 50% Working Interest
in this well. Altamont retained the remaining 25% interest in this well.
We believe that all the terms of the transactions and agreements with related
parties in connection with our business development as described above were
comparable to terms we could have obtained from unaffiliated parties.
10
Majestic Oil & Gas, Inc is engaged in the exploration, development, acquisition
and operation of gas properties. Because gas exploration and development and
development requires significant capital and because our assets and resources
are limited, we participate in the gas industry through the purchase of
interests in either producing wells or gas exploration and development and
production projects.
Majestic Oil & Gas, Inc. is a development stage company, and as such it is
difficult for us to forecast our revenues or earnings accurately. We believe
that future period-to-period comparisons of our operating results may not be
meaningful and should not be relied upon as an indication of future performance
as we have and will have no backlog of orders. Our operating results in one or
more future quarters may fall below investor expectations which, assuming our
common stock trades on a recognized market, would almost certainly cause the
future trading price of our common stock to decline. You should read the
following discussion together with the condensed consolidated financial
statements and their accompanying notes, included elsewhere in the report.
Based upon our Management's experience in the industry and on recent events,
including increasing global demand for energy and energy disruptions caused by
natural disasters, we believe the trend in oil and gas prices will remain
relatively stable or decrease slightly, but over the long-term are more likely
to increase. We expect to continue to generate positive net income from
operations in the future, although our revenue and expenses will increase as we
expand our drilling and ownership activities.
RESULTS OF OPERATIONS
Three months ended June 30, 2006 vs. Three months ended June 30, 2005
Three months ended Three months ended
June 30, 2006 June 30, 2005
------------------ ------------------
Revenue $ 9,686 $28,145
Expenses $ 15,409 $15,926
Net Income (Loss) ($5,723) $12,219
Gross Revenues for 2nd Quarter 2006 of $9,686 decreased by $18,459 from the
$28,145 in Gross Revenues reported for the 2nd Quarter 2005. The change in the
revenues between these two periods is a direct result of the decrease in the
price received for our natural gas production along with a significant decrease
in production volumes. This production decrease is due to the gathering system
in the Lake Frances Field reaching its maximum capacity. The Operator of the
Lake Frances Gathering System is currently applying for a new air quality permit
for a new compressor, which will be installed in the Lake Frances Field in the
Fourth Quarter of 2006. This will increase the capacity of the gathering system
and should result in an increase in production from the wells in which Majestic
Oil & Gas, Inc., holds an interest. Majestic Oil & Gas Operations, Inc's Net
Share of the production volumes from the Ludwig State #36-1 and Boucher #27-1
wells for 2nd Quarter 2006 were 2,199 MCF compared to 5,029 MCF for 2nd Quarter
2005. The average price received per thousand cubic feet of natural gas during
the 2nd Quarter 2006 was $3.63 compared to the average price of $4.58 per
million cubic feet received during the 2nd Quarter 2005.
11
Our expenses decreased slightly for the three months ended June 30, 2006 vs. the
three months ended June 30, 2005 with a significant decrease in the expense for
taxes and royalties, offset by a significant increase in legal and accounting
expenses. The majority of the legal and accounting fees are a result of fees
paid to EideBailly, LLP, for the auditing of our financial statements for the
period ending December 31, 2005.
The Company showed a Net Loss of $5,723 for the 2nd Quarter 2006 compared to the
Net Income of $12,219 realized during 2nd Quarter 2005. This variance is
directly related to the decrease in revenues for the quarter.
Six months ended June 20, 2006 vs. Six months ended June 30, 2005
Six months ended Six months ended
June 30, 2006 June 30, 2005
------------------ ------------------
Revenue $ 27,532 $58,215
Expenses $ 37,124 $31,503
Net Income (Loss) ($9,592) $26,712
Gross Revenues for the Six Months Ended June 30, 2006 of $27,532 decreased by
$30,683 from the $58,215 in Gross Revenues reported for the Six Months Ended
June 30, 2005. The change in the revenues between these two periods is a direct
result of the fluctuation in the price received for our natural gas production
along with a significant decrease in production volumes. This production
decrease is due to the gathering system in the Lake Frances Field reaching its
maximum capacity. Majestic Oil & Gas Net Share of the production volumes from
the Ludwig State #36-1 and Boucher #27-1 wells for the Six Months ended June 30,
2006 were 4,881 MCF compared to 10,804 MCF for the Six Months ended June 30,
2005.
12
Our expenses increased slightly for the Six Months ended June 30, 2006 vs. the
Six Months ended June 30, 2005 with a significant decrease in the expense for
taxes and royalties, offset by a significant increase in legal and accounting
expenses. The majority of the legal and accounting fees are a result of fees
paid to EideBailly, LLP, for the auditing of our financial statements for the
period ending December 31, 2005.
The Company showed a Net Loss of $9,592 for the Six Months ended June 30, 2006
compared to the Net Income of $26,712 realized during Six Months ended June 30,
2005. This variance is directly related to the decrease in revenues for the Six
month period.
LIQUIDITY AND RESOURCE CAPITAL
We are a development stage company. From our inception to June 30, 2006, we
incurred an accumulated deficit of $289,633. This deficit is primarily the
result of $300,000 in expenses associated with stock issuances during fiscal
year ended December 31, 2002. In addition, as of June 30, 2006, we had $188,521
of current cash available. Our cash resources of $188,521 are sufficient to
satisfy our cash requirements over the next 12 months.
We need an additional minimum of $1,000,000 to finance our planned expansion in
the next 12 months, which funds will be used for drilling of development gas
wells in the Lake Frances and Williams Fields. We hope to be able to raise
additional funds from an offering of our stock in the future. However, this
offering may not occur, or if it occurs, may not raise the required funding. We
may also consider securing debt financing. We may not raise other equity or debt
financing sufficient to fund this amount. If we don't raise or generate these
funds, the implementation of our short-term business plan will be delayed or
eliminated.
Our ability to continue as a going concern is dependent on our ability to raise
funds to implement our planned development; however we may not be able to raise
sufficient funds to do so. Our independent auditors have indicated that there is
substantial doubt about our ability to continue as a going concern over the next
twelve months. Our poor financial condition could inhibit our ability to achieve
our business plan.
COMMITMENTS AND CONTINGENCIES
On July 1, 2004, the Company entered into an operating agreement with Altamont
Oil & Gas, Inc., through which Altamont Oil & Gas, Inc. will operate the wells
in which we have acquired a working interest. Our share of monthly operating
costs will be deducted from our monthly share of production revenue.
13
Item 3. Controls and Procedures
An evaluation was carried out under the supervision and with the participation
of the Company's management, including the Chief Executive Officer ("CEO") and
Chief Financial Officer ("CFO"), of the effectiveness of the Company's
disclosure controls and procedures as of June 30, 2006. Based on that
evaluation, the CEO and CFO have concluded that the Company's disclosure
controls and procedures are effective to provide reasonable assurance that: (i)
information required to be disclosed by the Company in reports that it files or
submits under the Securities Exchange Act of 1934 is accumulated and
communicated to the Company's management, including the CEO and CFO, as
appropriate to allow timely decisions regarding required disclosure by the
Company; and (ii) information required to be disclosed by the Company in reports
that it files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms. During the quarter ended
June 30, 2006, there were no changes in the Company's internal control over
financial reporting that have materially affected, or are reasonably likely to
materially affect, its internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
14
Item 6. Exhibits
Exhibit Number, Name and/or Identification of Exhibit
1 31 Certification of the Chief Executive Officer and Chief
Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 Attached
2 32 Certification of the Chief Executive Officer and
Chief Executive Officer and Chief
Financial Officer pursuant to U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
15
SIGNATURES
In accordance with the Exchange Act, the registrant caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Majestic Oil & Gas, Inc.
Date: August 14, 2006
/s/ Patrick Montalban
---------------------------------
Patrick Montalban
Chief Executive Officer and Chief
Financial Officer
16