10QSB 1 monument3312005.txt FORM 10-QSB (3-31-2005) 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 March 31, 2005 [ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______________ to _______________ Commission file number 033-15528 MONUMENT RESOURCES, INC. --------------------------------------------------------------- (Exact name of Small Business Issuer as Specified in its Charter) Colorado 84-1028449 -------- ---------- (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 2050 South Oneida Street, Suite 106, Denver, Colorado 80224 ----------------------------------------------------------- (Address of Principal Executive Offices, Including Zip Code) (303) 692-9468 -------------- (Issuer's Telephone Number, Including Area Code) 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 -------- --------- State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 4,569,000 shares of common stock were outstanding at May 9, 2005. Transitional Small Business Disclosure Format (Check One): Yes No X --------- --------- MONUMENT RESOURCES, INC. AND SUBSIDIARY INDEX Page Number ----------- PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Balance Sheets as of 2 March 31, 2005 and September 30, 2004 Condensed Consolidated Statements of Operations 4 for the Three Months and Six Months ended March 31, 2005 and 2004 Condensed Consolidated Statements of Cash Flows 5 for the Six Months ended March 31, 2005 and 2004 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of 16 Financial Condition and Results of Operations Item 3. Controls and Procedures 19 PART II. OTHER INFORMATION 20 Signatures 21 Exhibit Index 22 1
Item 1. Financial Statements. MONUMENT RESOURCES, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS March 31, September 30, 2005 2004 ASSETS (Unaudited) (Audited) ----------- ------------- Current assets Cash and cash equivalents $ 128,464 $ 51,397 Investment in securities, at market 417,688 478,481 Accounts receivable 52,119 28,268 Prepaid expenses 8,825 19,179 ---------- ---------- Total current assets 607,096 577,325 Mineral property held for sale 28,706 28,706 Proved and unproved oil and gas properties, successful efforts method net of accumulated depletion 433,513 442,015 Property and equipment: Gas pipeline, net of accumulated depreciation 158,972 157,793 Property and equipment, net of accumulated depreciation 132,850 113,468 ---------- ---------- Net property and equipment 291,822 271,261 Investments in securities, at market 43,352 20,021 ---------- ---------- Total assets $1,404,489 $1,339,328 ========== ========== See Notes to Condensed Consolidated Financial Statements. 2 Item 1. Financial Statements. (Continued) MONUMENT RESOURCES, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS March 31, September 30, 2005 2004 LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) (Audited) ----------- ------------- Current liabilities Accounts payable and accrued expenses $ 25,693 $ 21,843 Asset retirement obligation 27,569 27,569 ----------- ----------- Total liabilities 53,262 49,412 Stockholders' equity: Preferred Stock, no par value, authorized 1,000,000 shares; none issued -- -- Common Stock, no par value, authorized 10,000,000 shares; 4,569,000 issued and outstanding on March 31, 2005 and September 30, 2004 3,148,018 3,148,018 Accumulated deficit (1,829,619) (1,874,149) Unrealized gain on investment in securities 32,828 16,047 ----------- ----------- Total stockholders' equity 1,351,227 1,289,916 ----------- ----------- Total liabilities and stockholders' equity $ 1,404,489 $ 1,339,328 =========== =========== See Notes to Condensed Consolidated Financial Statements. 3 Item 1. Financial Statements. (Continued) MONUMENT RESOURCES, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Six Months Ended March 31, Ended March 31, -------------- -------------- 2005 2004 2005 2004 ---- ---- ---- ---- Revenue Oil and gas sales $ 103,476 $ 94,202 $ 208,230 $ 172,084 Pipeline income 41,523 43,947 79,896 90,681 Interest and other 2,559 9,391 10,802 15,776 Gain (loss) on securities sale -- (749) (125) 1,275 ---------------------------- ----------------------------- Total 147,558 146,791 298,803 279,816 ---------------------------- ----------------------------- Expenses Oil and gas operating expense 16,667 12,603 29,626 24,717 Pipeline operating expense 48,823 41,185 83,235 78,237 General and administrative 41,027 43,226 112,878 107,926 Depletion, depreciation and amortization 12,969 9,725 28,534 19,450 ---------------------------- ----------------------------- Total 119,486 106,739 254,273 230,330 ---------------------------- ----------------------------- Net income $ 28,072 $ 40,052 $ 44,530 $ 49,486 ============================ ============================= Basic income per common share $ .01 $ .01 $ .01 $ .01 ============================ ============================= Diluted income per common share $ .01 $ .01 $ .01 $ .01 ============================ ============================= Weighted average number of shares outstanding 4,569,000 4,569,000 4,569,000 4,569,000 ============================ ============================= Diluted weighted average number of shares outstanding 4,749,000 4,893,627 4,749,000 4,893,627 ============================ ============================= See Notes to Condensed Consolidated Financial Statements. 4 Item 1. Financial Statements. (Continued) MONUMENT RESOURCES, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended March 31, -------------------------- 2005 2004 ---- ---- Cash flows from operating activities: Net income $ 44,530 $ 49,486 Adjustment to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 28,534 19,450 (Gain) loss on sale of securities 125 (1,275) Changes in operating assets and liabilities: Decrease in prepaid expense 10,354 8,930 (Increase) in accounts receivable (23,851) (16,823) Increase (decrease) in accounts payable and accrued expenses 3,850 (20,664) --------- --------- Net cash flow provided (used) by operations 63,542 39,104 --------- --------- Cash flows from investing activities: Proceeds from sale of investment securities 54,118 105,748 Additions to oil and gas properties (2,158) (96,678) Additions to equipment (38,435) (1,601) Purchase of investment securities -- (100,000) --------- --------- Net cash flows provided (used) by investing activities 13,525 (92,531) --------- --------- Net increase (decrease) in cash 77,067 (53,427) Cash and cash equivalents at beginning of period 51,397 124,099 --------- --------- Cash and cash equivalents at end of period $ 128,464 $ 70,672 ========= ========= Schedule of Non-cash Investing Activities ----------------------------------------- Increase (decrease) in unrealized gain on securities available for sale $ 16,781 $ (3,164) ========= ========= See Notes to Condensed Consolidated Financial Statements 5
Item 1. Financial Statements. (Continued) MONUMENT RESOURCES, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES THE COMPANY Monument Resources, Inc, (the "Company") was organized under the laws of the State of Colorado on October 1, 1984. We are in the business of acquiring and brokering mineral and oil and gas properties and exploring, developing, and selling production from our oil and gas properties. Our mineral property is in Montana. Our oil and gas properties are in Webb and Knox counties, Texas, Leavenworth County, Kansas and Kimball County, Nebraska. We also operate a gas pipeline in conjunction with our Leavenworth gas wells. We have a substantial investment in mineral and oil and gas properties. We may not have sufficient capital to fully explore our mineral holdings or to develop some of our oil and gas properties, which would require additional investment. We have in the past relied on joint venture partners to supply most of the funds needed to explore or develop our properties, and may also rely on such partners for similar funding in the future. Our ability to obtain outside funding may be critical to our exploration and development efforts of some of our properties. As a result of these factors, recovery of our investments in these properties cannot be assured. BASIS OF PRESENTATION The accompanying condensed consolidated financial statements are unaudited. However, in our opinion, the accompanying condensed consolidated financial statements reflect all adjustments, consisting of only normal recurring adjustments, necessary for fair presentation. Interim results of operations are not necessarily indicative of results for subsequent interim periods or the remainder of the year. These financial statements should be read in conjunction with our Annual Report on Form 10-KSB for the year ended September 30, 2004. Except for the historical information contained in this Form 10-QSB, this Report contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in this Report. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Report and any documents incorporated herein by reference, as well as our Annual Report on Form 10-KSB for the year ended September 30, 2004. CONSOLIDATION The accompanying condensed consolidated financial statements include the accounts of our Company, and our wholly owned Kansas subsidiary, COG Transmission Corporation. All inter-company transactions and balances have been eliminated in consolidation. 6 Item 1. Financial Statements. (Continued) NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) REVENUE RECOGNITION The Company recognizes its share of sales of oil and gas production, net of transportation fees (pipeline income), at the time of delivery of the product to the purchaser. Pipeline income is earned from the transportation of gas from the wellhead to the purchaser. Pipeline income is contractually determined and is recognized at the time of delivery of the product to the purchaser. EARNINGS PER SHARE We have adopted Statement of Financial Accounting Standards ("SFAS") No. 128, addressing earnings per share. SFAS No. 128 established the methodology of calculating basic earnings per share and diluted earnings per share. The calculations differ by adding any instruments convertible to common stock (such as stock options, warrants, and convertible preferred stock) to weighted average shares outstanding when computing diluted earnings per share. The following is a reconciliation of the numerators and denominators used in the calculations of our basic and diluted earnings per share for the six months ended:
March 31, --------------------------------------------------------------------------------- 2005 2004 --------------------------------------- --------------------------------------- Per Per Net Share Net Share Income Shares Amount Income Shares Amount ------ ------ ------ ------ ------ ------ Basic earnings per share: Net income and share amounts $ 44,530 4,569,000 $ .01 $ 49,486 4,569,000 $ .01 Dilutive securities: Stock options 180,000 324,627 --------- --------- ------- --------- --------- ------- Diluted earnings per share: Net income and assumed share conversion $ 44,530 4,749,000 $ .01 $ 49,486 4,893,627 $ .01 ========= ========= ======= ========= ========= =======
7 Item 1. Financial Statements. (Continued) NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) MINERAL PROPERTIES Costs of acquiring, exploring, and developing specific mineral properties are capitalized on a property-by-property basis until the commercial viability of each property is determined. When a property reaches the production stage, the related capitalized costs will be amortized, using the units of production method on the basis of periodic estimates of ore reserves. Proved and unproved mining properties are periodically assessed for impairment of value and any impairments are charged to operations at the time of impairment. Should a property be sold or abandoned, its capitalized costs are charged to operations and gain or loss recognized. OIL AND GAS PROPERTIES We follow the successful efforts method of accounting for oil and gas activities. Under this accounting method, costs associated with the acquisition, drilling and equipping of successful exploratory and development wells are capitalized. Geological and geophysical costs, delay rentals and drilling costs of unsuccessful exploratory wells are charged to expense as incurred. Depletion and depreciation of the capitalized costs for producing oil and gas properties are provided by the unit-of-production method based on proved oil and gas reserves. Undeveloped and unproved properties are periodically assessed for possible impairment due to unrecoverability of costs invested. Developed and proved properties are periodically assessed under the accounting rules of SFAS No. 144, "Accounting for the Impairment and Disposal of Long-Lived Assets". Cash received for partial conveyances of property interests are treated as a recovery of cost and no gain or loss is recognized. INCOME TAXES We have made no provision for income taxes for the six month period ended March 31, 2005 since taxable income will be offset by net operating loss carryforwards. We had approximately $1,771,090 of such carryforwards at September 30, 2004. INVESTMENT IN SECURITIES We follow SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," in accounting for our security investments. In accordance with SFAS No. 115, our investment in securities has been classified as available-for-sale because they are being held for an indefinite period of time. Under the available-for-sale classification, the securities are recorded as an asset at current market value on the balance sheet with an equal amount representing unrealized gains and losses recorded as a component of stockholders' equity. The current market value is derived from published newspaper quotations as of the end of each quarter. At the time of sale, a gain or loss is recognized in the statement of operations using the cost basis of securities sold as determined by specific identification. 8 Item 1. Financial Statements. (Continued) NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) COMPREHENSIVE INCOME We have adopted SFAS No. 130, "Reporting Comprehensive Income", which establishes standards for reporting of comprehensive income. This pronouncement requires that all items recognized under accounting standards as components of comprehensive income, as defined in the pronouncement, be reported in a financial statement that is displayed with the same prominence as other financial statements. Comprehensive income includes changes in equity during a period, except those resulting from investments by owners and distributions to owners. Under comprehensive income, we report unrealized gains and losses on investments in debt and equity securities as changes in equity on an annual basis only (but not for quarterly periods). ASSET RETIREMENT OBLIGATIONS We have adopted SFAS No. 143, "Accounting for Asset Retirement Obligations". SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. We have adopted SFAS No. 143 and recorded our estimated obligations. Quarterly accretion is not material. STOCK BASED COMPENSATION We have adopted SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of SFAS No. 123". SFAS No. 148 amends Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123) to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS No. 148 is effective for financial statements for fiscal years ending after December 15, 2002. We will continue to account for stock based compensation using the methods detailed in the stock-based compensation accounting policy. NEW ACCOUNTING PRONOUNCEMENTS FASB 151 - Inventory Costs In November 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 151, which revised ARB No. 43, relating to inventory costs. This revision is to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage). This Statement requires that these items be recognized as a current 9 Item 1. Financial Statements. (Continued) NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED) FASB 151 - Inventory Costs (continued) period charge regardless of whether they meet the criterion specified in ARB No. 43. In addition, this Statement requires the allocation of fixed production overheads to the costs of conversion be based on normal capacity of the production facilities. This Statement is effective for financial statements for fiscal years beginning after June 15, 2005. Earlier application is permitted for inventory costs incurred during fiscal years beginning after the date of this Statement is issued. Management believes this Statement will have no impact on our financial statements once adopted. FASB 152 - Accounting for Real Estate Time-Sharing Transactions In December 2004, the FASB issued SFAS No. 152, which amends SFAS No. 66, Accounting for Sales of Real Estate, to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real Estate Time-Sharing Transactions. This Statement also amends SFAS No. 67, Accounting for Costs and Initial Rental Operations of Real Estate Projects, to state that the guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not apply to real-estate time-sharing transactions. The accounting for those operations and costs is subject to the guidance in SOP 04-2. This Statement is effective for financial statements for fiscal years beginning after June 15, 2005. Management believes this Statement will have no impact on our financial statements once adopted. FASB 153 - Exchanges of Non-monetary Assets In December 2004, the FASB issued SFAS No. 153. This Statement addresses the measurement of exchanges of non-monetary assets. The guidance in APB Opinion No. 29, Accounting for Non-monetary Transactions, is based on the principle that exchanges of non-monetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. This Statement amends Opinion No. 29 to eliminate the exception for non-monetary exchanges of similar productive assets and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. A non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This Statement is effective for financial statements for fiscal years beginning after June 15, 2005. Earlier application is permitted for non-monetary asset exchanges incurred during fiscal years beginning after the date of this Statement is issued. Management believes this Statement will have no impact on our financial statements once adopted. 10 Item 1. Financial Statements. (Continued) NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED) FASB 123 R (revised 2004) - Share-Based Payments In December 2004, the FASB issued a revision to SFAS No. 123, Accounting for Stock Based Compensation. This Statement supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. This Statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of those equity instruments. This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. This Statement does not change the accounting guidance for share-based payment transactions with parties other than employees provided in Statement No. 123 as originally issued and EITF Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services." This Statement does not address the accounting for employee share ownership plans, which are subject to AICPA Statement of Position 93-6, Employers' Accounting for Employee Stock Ownership Plans. A nonpublic entity will measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of those instruments, except in certain circumstances. A public entity will initially measure the cost of employee services received in exchange for an award of liability instruments based on its current fair value; the fair value of that award will be re-measured subsequently at each reporting date through the settlement date. Changes in fair value during the requisite service period will be recognized as compensation cost over that period. A nonpublic entity may elect to measure its liability awards at their intrinsic value through the date of settlement. The grant-date fair value of employee share options and similar instruments will be estimated using the option-pricing models adjusted for the unique characteristics of those instruments (unless observable market prices for the same or similar instruments are available). Excess tax benefits, as defined by this Statement, will be recognized as an addition to paid-in-capital. Cash retained as a result of those excess tax benefits will be presented in the statement of cash flows as financing cash inflows. The write-off of deferred tax assets relating to unrealized tax benefits associated with recognized compensation cost will be recognized as income tax expense unless there are excess tax benefits from previous awards remaining in paid-in capital to which it can be offset. 11 Item 1. Financial Statements. (Continued) NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED) FASB 123 R (revised 2004) - Share-Based Payments (continued) The notes to the financial statements of both public and nonpublic entities will disclose information to assist users of financial information to understand the nature of share-based payment transactions and the effects of those transactions on the financial statements. The effective date of this Statement for the Company is the first interim reporting period after the Company's year end or the period ending December 31, 2005, unless such deadline is extended by the SEC. Management intends to comply with this Statement at the scheduled effective date for our relevant financial statements and does not believe the adoption of the Statement will have a material impact on the Company's financial statements. NOTE 2 -- ESTIMATES AND RISKS The mining and oil and gas industries are subject, by their nature, to environmental hazards and cleanup costs for which we carry liability insurance. At this time, we know of no substantial costs from environmental accidents or events for which we may be currently liable. In addition, our oil and gas business makes us vulnerable to changes in wellhead prices of crude oil and natural gas. Such prices have been volatile in the past and can be expected to be volatile in the future. By definition, proved reserves are based on current oil and gas prices. Price declines reduce the estimated proved reserves and increase annual amortization expense (which is based on proved reserves). NOTE 3 -- STOCK OPTIONS The following schedule summarizes information with respect to options granted under our equity plans: Number Weighted Average of Exercise Price of Shares Shares Under Plans ------ ------------------ Outstanding September 30, 2004 750,000 $ .19 Granted -- -- Exercised -- -- Forfeited or expensed -- -- ------- ------- Outstanding March 31, 2005 750,000 $ .19 ======= ======= 12 Item 1. Financial Statements. (Continued) NOTE 4 -- SEGMENT INFORMATION We operate in three industry segments within the United States: (1) oil and gas exploration and development, (2) mineral exploration and development, and (3) gas transmission pipeline. Identified assets by industry are those assets that are used in our operations in each industry. Corporate assets are principally cash, investment securities, furniture, and fixtures. We have adopted SFAS No. 131, which requires the presentation of descriptive information about reportable segments which is consistent with that made available to us in order to assess performance. Our oil and gas segment derives its revenues from the sale of oil and gas. Our mining segment receives its revenues primarily from the sale of minerals and precious metals and from time to time from the sale of a mineral venture that we have originated. Corporate income is primarily derived from interest income on our funds held in money market accounts and the sale of securities. Our pipeline segment derives revenue from the sale of natural gas from our gas fields in Leavenworth County, Kansas. During the six months ended March 31, 2005, we had no inter-segment revenues. The accounting policies applied by each segment are the same as those we use in general. Net sales to one customer of our gas transmission pipeline segment totaled $193,803, or approximately 93% of our revenues for the six months ended March 31, 2005. There have been no differences from our last annual report in the bases of measuring segment profit or loss. There have been no material changes in the amount of assets for any of our operating segments since the last annual report. 13 Item 1. Financial Statements. (Continued) NOTE 4 -- SEGMENT INFORMATION (CONTINUED) Segment information for the six months ended March 31, 2005 and 2004 is as follows:
Oil and Gas Pipeline Mining Corporate Consolidated ----------- -------- ------ --------- ------------ Revenues 2005 $ 208,230 $ 79,896 $ -- $ 10,677 $ 298,803 2004 172,084 90,681 -- 17,051 279,816 Income (Loss) From Operations 2005 $ 162,346 $ (14,823) $ -- $(102,993) $ 44,530 2004 137,167 6,844 -- (94,525) 49,486 Identifiable Assets 2005 $ 515,715 $ 257,192 $ 28,706 $ 602,876 $1,404,489 2004 423,884 211,554 33,706 705,090 1,374,234 Depreciation, Depletion and Valuation Charged to Identifiable Assets 2005 $ 16,258 $ 11,484 $ -- $ 792 $ 28,534 2004 10,200 5,600 -- 3,650 19,450 Capital Expenditures 2005 $ -- $ 38,485 $ -- $ 2,158 $ 40,643 2004 96,678 -- -- 1,601 98,279
NOTE 5 -- OIL AND GAS ACTIVITIES KANSAS GAS PROJECT -- LEAVENWORTH COUNTY, KANSAS During the quarter ended December 31, 2002, we acquired five gas wells near our pipeline system. Construction of from three to six miles of new pipeline will be required to connect the new wells. Construction has been delayed due to right-of-way complications. During the quarter ended March 31, 2005, we continued to acquire the right-of-ways needed to construct part of the above pipeline and construction began in April 2005 and should be completed during the quarter ending June 30, 2005. We also purchased at a cost of $22,929 nearly 14,000 feet of gas pipe necessary to complete the connection of two new gas wells. 14 Item 1. Financial Statements. (Continued) NOTE 6 -- MINERAL ACTIVITIES DOBLER GOLD MINE PROSPECT -- BROADWAY COUNTY, MONTANA During January 2005, we were notified by Montana Mining Corp. that it was not going to exercise its option to acquire the Dobler prospect for a payment of $200,000. Since July 19, 2002, we have received non-refundable payments from Montana Mining Corp. totaling $25,000, which reduced our basis in the prospect to $28,706. Our current plan is to list the property for sale as real estate for significantly more than our cost basis. NOTE 7 -- COMPREHENSIVE INCOME Comprehensive income is the total of net income and all other non-owner changes in equity. Comprehensive income includes our net income and the change in unrealized gain (loss) on available for sale investments. We report the unrealized gain on the investment in securities in our Consolidated Balance Sheet. The table below details the changes during the three months ended March 31, 2005 and 2004, in our Accumulated Other Comprehensive Income balance and the components of our comprehensive income. Three months ended March 31, 2005 --------------------------------- Accumulated other comprehensive income at September 30, 2004 $ 16,047 Change in unrealized gain on securities held for sale 16,781 -------- Accumulated other comprehensive income at March 31, 2005 $ 32,828 ======== Three months ended March 31, 2004 --------------------------------- Accumulated other comprehensive income at September 30, 2003 $ 23,751 Change in unrealized gain on securities held for sale (3,164) -------- -------- Accumulated other comprehensive income at March 31, 2004 $ 20,587 ======== 15 Item 2. Financial Statements. MONUMENT RESOURCES, INC. AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES At March 31, 2005, our current assets were $607,096 and current liabilities were $25,693 and we had positive working capital of $581,403 compared to current assets of $577,325 at September 30, 2004 and current liabilities of $21,843 at September 30, 2004, resulting in working capital at September 30, 2004 of $555,482. Our working capital increased $25,921, or 4.7%. At the present time, our primary source of cash for operations and exploration is our current working capital, including $128,464 of cash held in a demand deposit account, cash that can be raised by selling shares held for investment or our investment in U.S. government sovereign agency securities and other corporate bonds, with a market value of $417,688 at March 31, 2005, and funds derived from our oil and gas operations. We have in the past, and plan in the future, to rely on joint venture partners or equity funding to supply some of the funds needed to evaluate and develop our properties. Any inability we may have to raise additional capital through a stock offering, to liquidate our securities holdings or obtain third party funding may limit development of most of our properties. Although we intend to use joint venture or equity funding to explore, acquire and, if warranted, develop our properties, the natural resource business is nevertheless capital intensive. We continue to seek joint venture financing for our properties and to acquire properties with near-term revenue generating capability. Our efforts to evaluate, identify and/or acquire such revenue-generating prospects and to further develop our existing properties have been ongoing during this past year, and, while we are optimistic, there is no assurance that we will be successful in securing the required capital. RESULTS OF OPERATIONS Due to an increase in the average sales price received for our gas and despite a decline in production volumes, revenue from our oil, gas and pipeline sales increased for the six months ended March 31, 2005 when compared to the same period in 2004. While our oil and gas production decreased 12.3%, the price received for our natural gas increased from an average of $3.14 per MCF for the six months ended March 31, 2004 compared to an average of $4.32 per MCF for the six months ended March 31, 2005, a 37.6% increase. Oil and gas sales increased 21%, or $36,146, from $172,084 to $208,230. Pipeline sales were $79,896 for the six months ended March 31, 2005 and $90,681 for the six months ended March 31, 2004, a decrease of $10,785, or 11.9%, due to an increase in prices and a decrease in volume. Interest and other revenue of $10,802 for the six months ended March 31, 2005 decreased from $15,776 for the six months ended March 31, 2004 primarily due to a decrease in yield on bonds currently held when compared to the yield received from bonds that matured in fiscal 2004. A bond was sold at a loss of $125 for the six months ended March 31, 2005 compared to $1,275 gain for the six months ended March 31, 2004. Oil and gas and pipeline operating 16 Item 2. Financial Statements (Continued). RESULTS OF OPERATIONS (CONTINUED) costs increased $10,000 for the six months ended March 31, 2005 when compared to March 31, 2004 primarily due to increased fuel cost, water disposal fees and expensing of a bonus to field personnel. General and administrative expenses totaled $112,878 for the six months ended March 31, 2005, compared to $107,926 for the six-month period ended March 31, 2004. The increase of $4,592 in general and administrative costs was primarily due to an increase in salaries paid to officers and employees. Due to an increase in the average sales price received for our gas and despite a decline in production volumes, revenue from our oil, gas and pipeline sales increased for the three months ended March 31, 2005 when compared to the same period in 2004. While our oil and gas production decreased, the price received for our natural gas increased from an average of $3.58 per MCF for the three months ended March 31, 2004 compared to an average of $4.13 per MCF for the three months ended March 31, 2005, a 15.4% increase. Oil and gas sales increased $9,274, from $94,202 to $103,476. Pipeline sales were $41,523 for the three months ended March 31, 2005 and $43,947 for the three months ended March 31, 2004, a decrease of $2,424, or 5.5%, due primarily to increased prices which was partially offset by decreased production. Interest and other revenue of $2,559 for the three months ended March 31, 2005 decreased from $9,391 for the three months ended March 31, 2004 primarily due to a decrease in yield on bonds currently held when compared to the yield received from bonds that matured in fiscal 2004. A bond was reclassified as a return of principal from sale of bonds resulting in a loss of $749 for the three months ended March 31, 2004. Oil and gas and pipeline operating costs increased 32.2% and 18.5%, respectively, primarily due to salary and fuel increases when comparing the three months ended March 31, 2005 to March 31, 2004. General and administrative expenses totaled $41,027 for the three months ended March 31, 2005, compared to $43,226 for the three month period ended March 31, 2004. The increase of $2,199, or 5%, in general and administrative costs was primarily due to an increase in salaries paid to officers and employees. CONTRACTUAL OBLIGATIONS We have no long-term contractual obligations as of March 31, 2005. We lease our corporate offices in Denver, Colorado under the terms of an operating lease, which expired on December 31, 2004. We are currently leasing the office space on a month-to-month basis. Yearly payments under the lease are $12,456. We have an operating lease on a gas compressor that we use in our pipeline operation. The lease is renewable on a month-to-month basis at a rate of $2,073 per month or $24,876 per year. 17 Item 2. Financial Statements (Continued). CONTRACTUAL OBLIGATIONS (CONTINUED) We also lease a compressor site from a third party. We can cancel the lease upon thirty - day written notice. The lease payment for the calendar year 2005 is $9,000 and was paid in January 2005. If we elect to continue the lease in 2006, the lease payment for that year will be $10,000. CRITICAL ACCOUNTING POLICIES AND ESTIMATES We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our Condensed Financial Statements. Reserve Estimates: Our estimates of oil and natural gas reserves, by necessity, are projections based on geological and engineering data, and there are uncertainties inherent in the interpretation of such data as well as the projection of future rates of production and the timing of development expenditures. Reserve engineering is a subjective process of estimating underground accumulations of oil and natural gas that are difficult to measure. The accuracy of any reserve estimate is a function of the quality of available data, engineering and geological interpretation and judgment. Estimates of economically recoverable oil and natural gas reserves and future net cash flows necessarily depend upon a number of variable factors and assumptions, such as historical production from the area compared with production from other producing areas, the assumed effects of regulations by governmental agencies and assumptions governing future oil and natural gas prices, future operating costs, severance and excise taxes, development costs and workover and remedial costs, all of which may in fact vary considerably from actual costs. For these reasons, estimates of the economically recoverable quantities of oil and natural gas attributable to any particular group of properties, classifications of such reserves based on risk of recovery, and estimates of the future net cash flows expected there from may vary substantially. Any significant variance in the assumptions could materially affect the estimated quantity and value of the reserves, which could affect the carrying value of our oil and gas properties and/or the rate of depletion of the oil and gas properties. Actual production, revenues and expenditures with respect to our reserves will likely vary from estimates, and such variances may be material. Many factors will affect actual net cash flows, including: o The amount and timing of actual production; o Supply and demand for natural gas; o Curtailments or increases in consumption by natural gas purchasers; and o Changes in governmental regulations or taxation. 18 Item 2. Financial Statements (Continued). CRITICAL ACCOUNTING POLICIES AND ESTIMATES (CONTINUED) Property, Equipment and Depreciation: We follow the successful efforts method of accounting for oil and gas properties. Under this method all productive costs incurred in connection with the exploration for and development of oil and gas reserves are capitalized. Such capitalized costs include lease acquisition, geological and geophysical work, delay rentals, drilling, completing and equipping oil and gas wells, including salaries, benefits and other internal salary related costs directly attributable to these activities. Costs associated with production and general corporate activities are expensed in the period incurred. Interest costs related to unproved properties and properties under development are also capitalized to oil and gas properties. If the net investment in oil and gas properties exceeds an amount equal to the sum of (1) the standardized measure of discounted future net cash flows from proved reserves, and (2) the lower of cost or fair market value of properties in process of development and unexplored acreage, the excess is charged to expense as additional depletion. Normal dispositions of oil and gas properties are accounted for as adjustments of capitalized costs, with no gain or loss recognized. ITEM 3. CONTROLS AND PROCEDURES Our management evaluated, with the participation of our chief executive and financial officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the chief executive and financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have held preliminary discussions with our independent accountants with respect to our future compliance with Section 404 of the Sarbanes-Oxley Act of 2002. We understand the Securities and Exchange Commission is considering certain relief measures for small business issuers. In the meantime, we intend to continue our discussions with our independent accountants to determine whether we have, and wish to devote, the management and financial resources required to comply with the referenced Section 404. If not, we may elect to suspend our reporting obligations under the Securities Exchange Act of 1934 because we have fewer than 300 shareholders. 19 MONUMENT RESOURCES, INC. AND SUBSIDIARY PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. N/A ITEM 2. UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS. N/A ITEM 3. DEFAULTS UPON SENIOR SECURITIES. N/A ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. N/A ITEM 5. OTHER INFORMATION. N/A ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibit 31.1 -- Certification of Chief Executive and Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002 Exhibit 32.1--Certification of the Chief Executive and Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K. No reports on Form 8-K were filed by the issuer during the quarter ended March 31, 2005. On April 20, 2005, the issuer filed a report on Form 8-K stating that Stewart A. Jackson, a director, had resigned that position as of January 17, 2005. 20 SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MONUMENT RESOURCES, INC. (Registrant) Date: May 9, 2005 By: /s/ A.G. Foust ---------------------------------------- A.G. Foust, President (Chief Executive Officer, Principal Financial and Accounting Officer) and a Director 21 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION ------ ----------- 31.1 Certification of Chief Executive and Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive and Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002. 22