SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from______ to _______
Commission file number 0-24623
________
SW Ventures, Inc.
_________________________________________________
(Exact name of registrant as specified in its charter)
Nevada 87-0559453
_______________________________ ________________________________
(State or other jurisdiction of (IRS employer identification no.)
incorporation)
455 East 400 South, Suite 100 Salt Lake City, Utah 84111
__________________________________________________ ____________
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (801) 355-6524
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None None
_________________________ ___________________________________
Securities registered pursuant to Section 12(g) of the Act:
Common
____________________________________________
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [x] Yes [ ] No
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not 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 were $ 76,903.
The Company has no "established" market for its common shares. Therefore,
management has arbitrarily valued the 1,392,066 shares held by non-affiliates
as of March 1, 1999, at $1,392.07, based on the par value of one mill ($0.001)
per share.
The number of shares outstanding of the issuer's common stock as of March
1, 1999, was 3,416,066 shares of common stock, $.001 par value per share.
Transitional Small Business Disclosure Format YES [ ] NO [x]
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
BUSINESS DEVELOPMENT
SW Ventures, Inc. (the "Company") was organized as a Nevada corporation
on May 7, 1996. The Company's business purpose is that of seeking out and
investing in various oil and gas opportunities in the Western United States.
At inception, the Company issued "unregistered", "restricted" shares to its
founders in connection with the initial funding of the Company. In June of
1997, the Company commenced an offering of its common stock pursuant to an
exemption from the registration requirements of Section 5 of the Securities
Act of 1933, as amended (the "Act"), under Section 3(b), Regulation D, Rule
504, whereby it offered for sale up to 1,000,000 of its unregistered common
shares at an offering price of $.10 per share. The purpose of the offering was
to raise funds for the purchase of a 21.25% working interest in the Montana
Prospect, a 320 acre oil lease in Crook County, Wyoming (the "Prospect"). The
Offering commenced on June 19, 1997 and closed on September 30, 1997 with all
shares offered sold for gross proceeds of $100,000.
In August of 1997, the Company purchased a 21.25% working interest in
the Prospect, which purchase included the cost of drilling and completion to
the Company, based on its 21.25% working interest, of the Montana Berger Well
#1. The total acreage acquisition costs were $11,330 and drilling and
completion of the first well totaled $62,995. The Company's share of revenues
from the well is 17.85% after a landowner's royalty is paid. The Company
elected to participate in a second well on the Prospect, the Montana Berger
Well #2, in late March 1998, which well has been drilled and completed. The
Company's share of the cost of drilling and completing the second well, based
on its 21.25% working interest, was $69,874. The Company's interest in oil
revenues on the second well after landowner royalties are paid is equal to
17.35%. The Company funded the drilling and completion of the second well
partially through funds raised in a second offering conducted pursuant to the
exemption provided for under Section 3(b), Regulation D, Rule 504, of the Act
which commenced on March 16, 1998, and closed on September 13, 1998 with
326,066 shares sold at $0.15 per share for gross proceeds of $48,910. The
funds raised were insufficient to pay the Company's share of the drilling and
completion of the second well. Additional funding was provided by an officer
and director who loaned the Company $11,200 of the required completion and
drilling costs, and approximately $9,764 came from revenues from operations.
The funds advanced by the officer and director were interest free and payable
at such time as the director and the Company mutually determine. At December
31, 1998, approximately $2,300 had been repaid. Subsequent to such date,
the balance was repaid in full to the Director.
The Company had intended to participate in other wells drilled on the
Prospect, and may do so, when and if the price of oil in the market place
increases and stabilizes. It also has investigated other business
opportunities in the oil and gas industry such as purchasing overriding and/or
working interests in other wells, the purchase of interests in producing
wells, and/or an investment in other oil and gas related businesses, although
the Company will make no decisions to pursue any of the foregoing until and
unless the price of oil in the market goes up and stabilizes. As of the
date hereof, the Company has invested in only one drilling program, the
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Montana Prospect Drilling Program (the "Program"), and has participated in the
drilling of two wells on that Prospect.
Oil prices have taken a sharp decline and the Company has begun seeking
other types of investment opportunities. It is currently negotiating with a
non-U.S. entity regarding the acquisition of certain assets. These
negotiations are at a preliminary stage and no definitive agreements have been
reached. If these negotiations prove successful and a transaction is
consummated, of which no assurance can be given, this transaction could result
in a change of control of the Company and the abandonment of its oil and gas
investment plans. The Company will file a report on Form 8-K if any material
acquisition of assets or change of control takes place.
BUSINESS OF THE COMPANY
Principal Products of the Company: the Montana Prospect Drilling Program
- -------------------------------------------------------------------------
* The Montana Prospect Drilling Program *
The Company's principal product is oil and gas. As of the date hereof,
the Company has invested in only project, the Program, which has drilled and
completed two wells: the Montana Berger Well #1 and the Montana Berger Well
#2. The Prospect is in the northeastern Powder River Basin in T. 53 N, R. 67
W, Section 17-18 and is part of an oil field known as the Sidner Draw Field.
The Program was formed for the purpose of engaging in the acquisition of 320
acres of oil and gas lease located in Crook County, Wyoming, and the drilling
of a well or wells thereon; completing such well(s); and, if warranted,
operating the same and distributing the revenues to the participants in the
Program, as defined below.
* Working Interest *
In August/September 1997, the Company purchased its 21.25% working
interest in the Program. The Company's initial investment in the Program
included the purchase of the leases and its estimated costs and expenses for
completion of the first well in the Program known as the Montana Berger Well
#1. Additional participants purchased 53.75% of the Program to equal 75% of
the Program. The working interest participants, including the Company, who
own an aggregate of 75% of the Program were responsible for 100% of the total
land acquisition and drilling costs of the project up through the drilling of
the first well, the Montana Berger Well #1; the Carried Working Interest
Owners, which include the Sponsor (Triple B Energy - 9.375%), the geologist
(Twiford International, Inc. - 6.250%), the operator of the well(s) (L& J
Operating, Inc.- 3.125%), and Mr. Robert Haigh (who negotiated the lease
acquisition - 6.25%), have an aggregate 25% Carried Working Interest (the
Working Interest Participants and the Carried Working Interest Participants
are hereinafter sometimes collectively referred to as the "Participants"). The
Carried Working Interest Participants did not bear lease acquisition costs,
which include 25 separate leases on the Prospect, or drilling costs of the
first well, the Montana Berger Well #1. All of the Participants, however,
paid their proportionate share of completion costs once casing point was set
on the first well; each Participant will pay its percentage share of all
drilling and completion on any subsequent well they elect to participate in.
Each Participant has first right of refusal on participation in each well the
Program elects to drill, with a 300% penalty on revenues to be received by a
non-participating party on any well such party chooses not to participate in.
(Participating parties would receive three times the return of their
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investment before a non-participating party is entitled to revenues on a well
such party has not participated in.)
* Landowner Royalties *
The leases on the Prospect are three year leases from private landowners
(a total of 25 separate leases) at an aggregate cost to the Program of
$40,000. Each lease becomes perpetual when and if a well is completed on
the lease and during the life of the well. The Prospect is presently burdened
by landowners' royalties which vary from landowner to landowner. The acreage
on which the Montana Berger Well #1 was drilled is burdened by a landowners'
royalty of 16%, giving the Program a net interest of 84%. The Montana Berger
Well #2 involves 15 separate landowners with varying royalties which equal
18.36%, leaving the Program a net interest of 81.64%. (The foregoing
landowners' royalties are hereinafter generally referred to as the
"Landowners' Royalty".)The Participants are entitled to 100% of the revenues
after paying the landowners. Net revenues means the percentage of oil and gas
left to the Working Interest Participants after Landowners' Royalty and any
additional overriding royalties have been deducted from the total oil or gas
produced (approximately 17.85% to the Company on the Montana Berger Well #1
and 17.35% to the Company on the Montana Berger Well #2).
* Operating Agreement *
The Company is a party to an operating agreement (the "Operating
Agreement"), as is each Working Interest Participant. The Company appointed
the L & J Operating, Inc. (the "Operator") as the operator of the Prospect in
all matters related to the drilling and completion of any well(s)drilled
thereon, and in the subsequent sale and delivery of oil and gas therefrom, if
any, into the marketplace. Each time the Company elects to participate in the
drilling and completion of a well, it is given an itemized "Approval for
Expenditures", which outlines the itemized costs of drilling and completion as
well as other costs anticipated to be expended on the proposed well.
* Assignment of Lease *
Subsequent to the execution of the Operating Agreement, all of the
subject leases comprising the Prospect, consisting of 25 separate leases,
were held in the record name of Robert S. and Marjorie Fern Haigh. The
subject oil and gas leases were then assigned to the Company (in its
proportionate interest equal to 21.25%) on November 6, 1997 by the Haighs.
Mr. Haigh was the negotiator on behalf of the Program with the landowners and
each of the 25 leases was originally assigned to him prior to and during the
sale of the working interest in the Program. The leases were then assigned to
the Participants in the Program subsequent to the execution of the Operating
Agreement between L & J Operating and the various Participants in the Program,
and recorded with the Crook County Recorder, Connie D. Tschetter, on Nov. 6,
1997, Book 356, page 116. The twenty-five leases which are the subject of
the Operating Agreement are three year leases with varying lease dates
beginning as early as August 20, 1996. Nine of these leases are dated August
20, 1996, and will therefore expire, unless renewed, on August 20, 1999.
However, if a well is successfully drilled and completed on any lease, the
lease becomes perpetual for the life of the well. The Program must complete
its proposed drilling by as early as August 20, 1999 and as late as June 20,
2000, or renew those leases on undrilled acreage. The Company receives 21.25%
of the net revenues after payment of the landowner's royalty .
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* The Producing Wells on the Prospect: Montana Berger Wells #1 and #2 *
The Montana Berger Well #1 is located in Township 53 North, Range 67
West, 6th P.M. Section 17: SW/4SW/4 on 40 acres. Total acquisition, drilling
and completion costs up through the completion of the Montana Berger Well #1,
were $285,725. The Working Interest Participants who own an aggregate of 75%
of the Program were responsible for all costs of land acquisition and drilling
at approximately $190,825; all of the Participants, however, paid their
proportionate share of completion costs once casing point was set equal to
$94,000 and will participate in any additional wells in accordance with their
working interest. The Company's initial payment of $74,233.66 to the Program
included the Company's purchase of the leases and drilling costs (on a basis
of 1/3 for 1/4), estimated at $54,067, and the Company's share of completion
costs estimated at $20,166. L & J Operating Company, the Operator of the
Program, began drilling of the Montana Berger Well #1 on September 9, 1997 and
oil began flowing in early October. The well, during its first few months,
flowed at a rate of approximately 130 barrels per day or 4,000 barrels per
month; during the Company's year ended December 31, 1998 the Montana Berger
Well #1 produced an average of approximately 100 barrels of oil per day. The
gravity of the oil produced from this well is approximately 21.1 and it is
considered sour asphalt base crude.
The Montana Berger Well #2 is located in Township 53 North 67 West,
Crook County Wyoming, Section 17, SW NE SW. In late March, 1998, the Company
paid an additional $62,000 to the Program, its estimated share of the drilling
and completion costs on the Montana Berger Well #2, the second well to be
drilled by the Program. Total drilling and completion costs for the Montana
Berger Well #2 were estimated at $163,000 for drilling and $129,000 for
completion, of which the Company paid 21.25% or $62,000. L & J Operating
Company began the drilling of the Montana Berger Well #2 on March 28, 1998 and
a completion rig was moved onto the property on April 6, 1998. Some
additional completion costs were incurred on the second well which required
the payment of an additional $7,800 to the Program by the Company. The average
production on the Montana Berger Well #2 is approximately 90 barrels per day
at December 31, 1998. The average gravity of the production from the Montana
Berger Well #2 is 21.78 and is considered sour asphalt base crude.
The Company has received approximately $99,000 in gross revenues from
production from the Montana Berger wells (net of landowner royalties) since
production began on the wells (October 1997 for the Montana Berger #1 and
April 1998 on the Montana Berger #2). Well operating expenses (taxes,
administration and well expenses) equaled approximately $ 34,875 not including
cost depletion during that same period.
*Well Completion *
Both of the currently producing wells on the Prospect, the Montana
Berger Well #1 and #2 and the next proposed well to be drilled on the
Prospect, were or will be completed by the Operator in the same fashion,
without the necessity of using a heavy mud system by setting casing prior to
reaching the Minnelusa formation. A cased whole log is run before the hole is
drilled into the Upper "B" sand and this sand is not penetrated more than a
few feet. Installation of a secondary water flood is not necessary because
the Upper "B" sand in the producing wells is being pressurized due to the
adjacent water flood at the Deadman Creek Field. (For a more detailed
description of the Minnelusa formation, see "ITEM 2. PROPERTIES, LOCATION AND
DESCRIPTION OF PROPERTIES/OIL PRODUCING ACTIVITIES, Description of Fields,
Location and Geology of Sidner Draw Field."
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Distribution Method of the Company's Product
- --------------------------------------------
The Company is dependent on the Operator to market any oil production
from the Montana Berger Wells #1 and #2 and any subsequent production which
may be received from other wells which may be successfully drilled on the
Prospect. The Company must rely on the Operator's ability and expertise in
the industry to successfully market the same. Prices at which the Operator
sells gas/oil both in intrastate and interstate commerce, will be subject to
the availability of pipe lines, demand and other factors beyond the control of
the Operator. The Operator believes any oil produced can be readily sold to a
number of local buyers. To date, all of the Company's oil production has been
sold to Eighty Eight Oil Company of Casper, Wyoming. There are other local
companies, however, which are also willing to purchase the Program's crude
oil. No assurance can be given, however, that the current price of oil, which
has decreased dramatically since the Company started realizing revenues from
operations from $16.49 per barrel @ 40 gravity to approximately $6.28 per
barrel @ 40 gravity as of December 31, 1998, will increase and stabilize. The
Operator, however, is in the position to negotiate contracts with buyers to
purchase production for a definitive period of time; such purchase contracts
often include bonuses. The last contract was a 12 month contract; the current
one with Eighty-Eight Oil Company is for six months. (See "Competitive
Position in the Industry", below.)
Competitive Position in the Industry
- ------------------------------------
There are a large number of companies and individuals engaged in the
exploration for and development of oil and gas properties. Competition is
intense for the acquisition of oil and gas leases suitable for exploration,
the purchase or sale of producing properties and the raising of capital.
Capital available for the investment in the oil and gas industry has declined
significantly as a result of decreases in oil prices and changes in federal
tax laws and adverse economic conditions generally affecting the oil and gas
industry. The Company is a small, inexperienced company and must compete with
much larger companies which are better capitalized, have considerably more
experience in the oil and gas industry, are better able to fund drilling
enterprises than the Company is, and are better able to withstand the negative
impact of the low price of oil in the market. The Company's only competitive
factor is its low production costs (because it is a "flow" well which does not
require pumping.) This lower production cost may be off-set by the fact that
the same water pressure which pressurizes the well, may also be the cause of
the slow but gradual increase of water in the Company's production, from
almost zero when each of the wells began flowing, to approximately 12% as of
the date hereof. At present date, however, production costs are such that it
is still cost effective to flow the wells. This gives the Program a slight
advantage because many marginal wells in Wyoming have been shut-in in recent
months (an estimated 1,200 wells) due to plummeting oil prices, and the demand
for the sour asphalt base crude such as produced by the Montana Berger Wells
#1 and #2 has risen. As a result of this increased demand the Operator has
been able to negotiate a better contract with Eighty Eight Oil Company with a
higher bonus per barrel. Currently the Operator has a six month contract in
effect with Eighty Eight Oil Company, which has agreed to purchase all
production from the Program for the term of the contract. Eighty Eight Oil
Company has agreed to pay an approximate $3.50 per barrel bonus over and above
the posted price of oil per barrel in the market at the time of sale. The
beginning date of the contract was January 1, 1999. Although, the Operator's
former contract with Eighty Eight Oil Company also included a bonus per
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barrel, the new contract is paying a bonus which is approximately $1.00 -
$2.50 bonus per barrel more than the former contract.
Sources and Availability of Equipment/Raw Materials
- ---------------------------------------------------
In the past, increased drilling activities from time to time have created
certain shortages of equipment necessary in the drilling and or completion of
wells. Due to shortage of such equipment and to generally inflationary
trends, and the age and condition of much of the existing equipment, prices at
which equipment is available have escalated. Although the Company has
suffered no problems to date as to equipment shortages, it has incurred
certain expenses due to its investment in older equipment, as part of its
working interest obligations. There is always the possibility that current
equipment in use due to age and/or lack of proper maintenance could fail to
perform properly. This would force expensive repairs and/or costly delays to
the working interest participants, one of which will be the Company, or the
purchase of additional new or used equipment which could be delayed if
shortages of equipment exist. In addition, there is no guarantee that the
necessary equipment will be available when and if the Program begins
developing other leases on the Prospect.
Dependence on a Few Major Customers
- -----------------------------------
The Company is not dependent on a few major customers but rather is
dependent upon the Operator's ability to market crude oil to prospective
purchasers. There are a number of prospective purchasers in the State of
Wyoming for the Company's crude oil. All of the production to date from the
Program's two wells has been purchased by Eighty Eight Oil Company under
various contracts. Currently the Operator has a six month contract in effect
with Eighty Eight Oil Company, which has agreed to purchase all production
from the Prospect paying an approximate $3.50 per barrel bonus over and above
the posted price of oil per barrel in the market at the time of sale. The
beginning date of the contract was January 1, 1999. However, if at the end of
six months the Operator is unable to negotiate a new contract with Eighty
Eight Oil Company, there are numerous other available purchasers.
Effect of Existing/Probable Government Regulations on the Company's Business
- ---------------------------------------------------------------------------
The areas of oil and gas exploration have become highly regulated by
state and federal governmental agencies. Although the Operator is experienced
in the area of oil and gas operations and has not encountered any unknown,
unanticipated or additional expenses or problems due to government
regulations, there is no guarantee that new rules and regulations may not be
adopted either at a state or federal level which would adversely affect the
Company's oil and gas operations. Recent changes in Wyoming statutes
affecting taxes on oil and gas have had certain effects on taxation of the
Company's oil revenues. During late 1997, the State of Wyoming eliminated its
2% severance tax rate on wells which were designated as "wild cat" wells
(first productive well in an area). Although newly discovered crude continues
to receive a tax break of 2%, such rate is applicable to the first 60 barrels
of production per day only, which increases to 6% on any production over 60
barrels on a daily basis. Such tax break is only for the first two years of
production. This change has resulted in increased taxation for the Company on
production from oil and less profitability from operations. Unless
regulations change, in October of 1999, the Company will no longer be eligible
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to utilize the 2% tax break on its first 60 barrels per day produced from the
Montana Berger #1 and will be subject to a full 6% tax on that well.
The State of Wyoming House of Representatives gave preliminary approval
to oil tax breaks in early February of 1999, which would reduce the State's
severance tax rate to 4% if the price of oil is between $11 and $16 per barrel
and 2% if it is less than $11 per barrel. The severance tax would also rise
to 8% if the price per barrel of oil in the market exceeded $16. On February
25, 1999, the Wyoming State Senate adopted an amended version of the proposed
tax breaks. The bill reduces the severance tax from 6% to 4% for 1999 and 2000
for as long as oil stays below $20 per barrel. The bill must go back to the
State of Wyoming House of Representatives for final approval of changes.
Although such legislation will certainly help offset the negative impact of
the low oil prices on the Company, the bill is not yet law.
Costs and Effects of Compliance with Environmental Laws
- -------------------------------------------------------
In the conduct of its drilling operations, the Operator may encounter
natural hazards, such as unusual or unexpected rock formations or pressures,
or other conditions not anticipated which could result in substantial cost
overruns or the inability of the Operator to drill and complete the well which
otherwise might be productive. The insurance against these hazards that the
Operator may carry may be insufficient to offset all such contingencies. The
Prospect may also be subject to liabilities for pollution or other damages,
both environmental or otherwise, against which it cannot insure or the
Operator chooses not to insure, due to premium costs or other reasons.
Accordingly, it is possible that the Company could incur substantial
liabilities to third parties including liabilities for environmental clean-up
which could reduce funds available for exploration and development or reduce
revenues to the Company. Because the land leases involve private property, the
Operator is subject to rules and regulations of the Wyoming Oil and Gas
Conservation Commission.
The Company's current involvement with a drilling program which is being
drilled in the Minnelusa area, has specific difficulties associated with water
driven wells which involve potential water removal from the wells. Although
the Operator of the wells has experience in Minnelusa wells and operates the
same in a manner which minimizes the risks inherent in such a well, it likely
that the significant increase of water in production which the wells have
experienced over the past few months will continue. There are strict laws
regarding disposal of water from oil wells if the water has salinity above a
certain percentage. These laws, which are enforced by the State of Wyoming
Department of Water Quality, can be expensive to comply with. All of the
water from the Company's Montana Berger Wells #1 and #2 has excess salinity
and must be disposed of in a certain location and manner. It is, and will
continue to be, costly to dispose of the water and one or both wells could be
shut-in if the water production increases to the point where it is no longer
cost-effective to flow the wells and dispose of the water. As of December 31,
1998, both wells were showing increased percentages of water equaling
approximately 12.5%. The Company's costs have risen along with the increase
because it is now faced with its portion of water removal and disposal costs.
The Company is dependent on the Operator for the proper removal and disposal
of water, compliance with applicable laws and regulations, and for the proper
shutting in of one or both of the wells should production become uneconomical.
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Status of Publicly Announced New Products
- -----------------------------------------
The Company has made no public announcements on any new products or
services nor does it have any new products or services.
Patents/Trademarks/Licenses/Concessions/Franchises/Labor Contracts/Royalties.
- -----------------------------------------------------------------------------
The Company has no patents, trademarks or trade names nor does it
anticipate applying for the same. The Company does not have any licenses,
concessions, franchises, or labor contracts. The Company does not have any
royalty contracts other than those discussed under "BUSINESS OF THE COMPANY,
Principal Products of the Company, the Program, *Landowner Royalties*."
Research and Development
- ------------------------
Other than the development of the various wells on the Prospect, the
Company is conducting no research and development nor has it since its
inception. The Company's participation in the development of oil wells in the
Sidner Draw Field is further discussed elsewhere in this "Business" section
and under "ITEM 2, PROPERTIES."
Number of Employees
- -------------------
The Company has no employees as of the date hereof other than one of its
officers. The Company compensates its Secretary/Treasurer for services
rendered in those capacities and for various services performed for the
Company as a consultant, at a rate of $1,000 per month. (See "Executive
Compensation".)
ITEM 2. DESCRIPTION OF PROPERTIES.
LOCATION AND DESCRIPTION OF PROPERTIES/OIL PRODUCING ACTIVITIES
The Company owns a 21.25% working interest in a drilling program on the
320 acre Prospect, located on an oil field known as the Sidner Draw Field.
Description of Fields the Sidner Draw Field
- ---------------------------------------------
* Location and Geology of the Sidner Draw Field *
In contemplating its initial investment in the Program, the Company
reviewed information contained in a geology report by Twiford International
Inc. The Prospect, located in the Sidner Draw Field in Township 53 North,
Range 67 West, 6th P.M. of Section 17: W/2W/2, SE/4NW/4, NE/4SW/4 and Section
18: E/2NE/4 (2-40 acre parcels are in the NE part of Section 18 and 6-40 acre
parcels are in Section 17), Crook County, Wyoming, is comprised of 320 acres
located on two adjacent southwest plunging anticlinal paleogeomorphic
features. The productive formation is the Minnelusa Upper "B" sand and is the
primary target of this Prospect area. The sand on the Montana Berger Well #1
was anticipated and subsequently encountered at depth of 6100 feet at the well
location. The same Minnelusa Upper "B" sand which is common to the Prospect
will be encountered on any wells drilled. This particular sand was charged
with a bottom hole pressure approximately 800 lbs. above normal, or about 3200
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pounds. The excessive pressure is believed to be caused from water loss in
the adjacent Deadman Creek Field which is undergoing a water flood in the
lower "B" Minnelusa sand. The field is currently named the Sidner Draw Field.
The Minnelusa Upper "B" Sand is an eolian dunal complex which pinches out
in an easterly or up-dig direction. This pinch-out is due in part to erosion
or non-deposition of the Upper "B" sand. The impermeable Opeche shale is the
up-dig trapping mechanism for oil in the Upper "B" sand while the underlying
Middle "B" dolomite provides the bottom seal for the Upper "B" sand. The
lateral trapping mechanism may be a pinch out of the sand itself which will
become dolomitic approaching the barrier. This could be a subsystem boundary
trap for the Upper "B" sand thus allowing a large accumulation of oil.
* Analogy to Sidner Draw Field - the Edsel Field *
The Prospect area which is located on the Sidner Draw Field is adjacent
to sections of similar geology such as the Edsel Field which is located in
sections 25,26, 27, 24, 36 of T.54N, R.68W, Crook County, Wyoming, and
contains wells which produce oil from Minnesula Upper "B" sand. According
to the Wyoming Oil and Gas Commission, as of May, 1996, the field had
produced 4,849,196 barrels of oil. Average porosity in the Edsel Field is
19.6% with net pay averaging 21.5 feet. The average water saturation is 47%.
The original oil in place was estimated at 6.25 million barrels and was
expected to produce 12.4% of this figure on a primary production increasing to
or 2.49 million barrels under a polymer augmented water flood. Since the
report to the Wyoming Oil and Gas Commission (1996- 4,849,196 barrels), there
have been six additional producing wells drilled in the field.
Stratigraphically, the Edsel Field is similar to the Prospect. This
comparison is based, in part, on values taken from the Wyoming Geological
Association Guidebook 1984.
Drilling Activity
- -----------------
* Exploration, Site Testing and Conclusions *
Five test holes were previously drilled by other programs on the
Prospect. Of the five test holes, four were dry holes and one is currently a
shut-in well. The shut-in well is on the southern feature and was drilled by
EMC Energies, Inc. in the SW SW of Section 17 and had an initial production of
700 barrels of oil per day, flowing. Such well was shut-in due to too much
water. Subsequent to the Company's involvement in the Program, the Montana
Berger Well #1 was drilled and completed about 800 feet northeast of the
initial shut-in well, in NE SW SW of Section 17 and the Montana Berger Well #2
was drilled approximately 650 feet from the Montana Berger Well #1 in SW NE SW
of Section 17 (See "The Producing Wells on the Prospect: Montana Berger Well
#1 and #2" under "BUSINESS").
The four dry holes drilled on the Prospect had varying results. Common
to each of the test sites however was the presence of water in sufficient
quantities to prevent the recovery of any material amount of oil in an
economic fashion. The hole drilled in SE NE of section 18, appears to be on
the down dip edge of an oil accumulation, while the well drilled in the SW SW
of section 17 penetrated oil in a pool as evidenced from the production from
the well (shut-in because of too much water.) The hole drilled in the NE NE
of section 18 penetrated a tight Upper "B" and is therefore a barrier hole.
The hole drilled in the SE NW of section 17 penetrated a thin tight section of
11
<PAGE>
Upper "B" interval which is on the up-dip edge of the dunal complex. The hole
drilled in the SE SW of section 17 penetrated a Minnelusa section that is
dolomitic with the Upper "B" zone completely absent. This hole penetrated the
southern lateral barrier of the Prospect area.
A dunal complex is present in this area with the necessary parameters
present to form an accumulation of oil, i.e. sand with good oil shows as well
as production down dip, sand gone and/or tight up-dig and laterally. The
first producing well on the Prospect, the Montana Berger Well #1, was drilled
in the NE SW SW of Section 17 and was high structurally to the original well
on the SW SW of section 17 (the shut in well).
Exploration and test drilling have resulted in an estimated productive
area of 130 acres with an estimated average thickness of productive pay in
feet of 25 and an estimated porosity of 23.9%. The conclusion of an initial
report on the Prospect performed by Twiford International, Inc., indicated
that on the estimated 130 productive acreage, there were potentially 5,739,072
barrels of oil in place with estimated primary recovery under normal
conditions of 12.4%. A waterflood could increase that recovery. The high
pressure of the Upper "B" sand may be a waterflood in itself precluding the
necessity of the installation. Gravity of the oil is approximately 20
degrees.
* Drilling Activity *
The following table sets forth the results of drilling activity by the
Company, net to its interest, since its inception in 1996.
Year Ended December 31,
1998 1997
______________________
Development Wells Gross:
Productive 2 1
Dry Holes 0 0
Total 2 1
Development Wells Net:
Productive 0.425 0.2125
Dry Holes 0 0
Exploratory Wells 0 0
Production
- ----------
The following table summarizes net volumes of oil produced and sold,
and the average prices received for such sales from all properties in which
the Company held an interest since its inception in 1996.
Year Ended December 31,
1996(5) 1997 1998
___________________________________________
Average Sales Price ($/Bbl)(1) 0 $ 13.15 $ 6.85
Production Data No. of Barrels(2) 0 1,531.19 11,390.71
Lifting Costs per barrel(3) 0 $ 2.31 $ 1.37
Taxes per barrel (4) 0 $ 1.46 $ 1.31
_____________________________________________________________________________
12
<PAGE>
(1) Based on the average price throughout the year;
(2) Company's share of production of 8,578 bbls. total in 1997; and 41,145
bbls (Montana Berger #1) and 23,324 bbls. (Montana Berger #2)in 1998;
(3) Lifting costs includes monthly recurring costs of producing and marketing
oil and gas, including costs incurred for labor, fuel, repairs, hauling,
materials, supplies, utilities, and other costs incident thereto, insurance
and casualty loss expense, and compensation to well operators for other
services rendered in conducting such operations.
(4) Average taxes per barrel paid by the Company which include production
taxes, severance taxes and ad valorem taxes.
(5) The Company had no interest in any oil properties during its calendar year
ended December 31, 1996.
Productive Wells and Acreage
- ----------------------------
As of the date hereof, the Company owns a 21.25% working interest net of
landowners' royalty in two net productive wells each on 40 acres. Both wells
were producing as of the last year end, December 31, 1998.
The following table sets forth information regarding the number of
productive wells in which the Company has a working interest as of the current
date. Productive wells are either producing wells or wells capable of
production although currently shut-in. One or more completions in the same
bore hole are counted as one well.
Gross Productive Wells Net Productive Wells
Total No. of Wells in which Sum of Total Amount of
Type Working Interest is Owned Working Interest in Gross Wells
- ---------- ---------------------------- --------------------------------
Oil 2 .425
The following table sets forth the approximate developed and undeveloped
acreage in which the Company held a leasehold, mineral or other interest as of
the current date. Undeveloped acreage includes leased acres on which wells
have not been drilled or completed to a point that would permit the production
of commercial quantities of gas of oil, regardless of whether or not such
acreage contains proved reserves. A gross acre is an acre in which interest is
owned. A net acre is deemed to exist when the sum of fractional ownership
interests in gross acres equals one. The number of net acres is the sum of
fractional interests owned in gross acres expressed in whole numbers and
fractions thereof.
Developed Developed Undeveloped Undeveloped
Location Gross Net Gross Net
- -------- --------- --------- ----------- -----------
Wyoming 80 17 240 51
13
<PAGE>
Reserves
- ---------
*Reserve Estimates *
Although the Company has had reports prepared for it on estimated oil
reserves, no estimate of total proved net oil reserves of the Company has been
filed with or included in reports to any federal authority or agency.
There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting rates of production and future net cash
flows. The quantities of oil that are ultimately recovered, production and
operating costs, the amount and timing of future development expenditures, and
future oil sales prices may all differ from those assumed in these estimates.
Reserve assessment is a subjective process of estimating recovery from
underground accumulations of oil that cannot be measured precisely, and
estimates of other persons might differ from those of the Company.
Accordingly, reserve estimates are often different from the quantities of oil
that are ultimately recovered. A market value determination would take into
account, among other things, the recovery of reserves not presently classified
as proved, anticipated future changes in prices and costs and a discount
factor more representative of the time value of money and the risks inherent
in reserve estimates. The information included in this section should be read
in conjunction with the Company's Financial Statements, including the Notes
thereto.
The Company's estimated proved oil reserves as of the date hereof are as
follows:
Proved Developed 67,695 barrels
Proved Undeveloped 0 barrels
*Reserve Report on the Prospect*
The Working Interest Participants in the Program engaged a petroleum
engineer, Tony C. Stone, dba Jadasat Enterprises, to complete a report on
the probable oil reserves on the Prospect. The report was completed as a
supplement to the Twiford International, Inc. Prospect Study (see DESCRIPTION
OF FIELDS THE SIDNER DRAW FIELD, Geology), and was based on the information
obtained from the shut-in well on the Prospect and from the producing well,
the Montana Berger Well #1 (the Montana Berger Well #2 was not completed at
the date of the report). Th report concluded that recoverable reserves on the
Prospect less production at the date of the report is estimated at 1,508,400
barrels. Mr. Stone's conclusions were partially based on the Twiford
International Report isopatch and structure maps and the completion and
restricted production procedure used by the Operator on the Montana Berger
Well #1. Mr. Stone indicated in his report that the Upper "B" productive
interval in the Sidner Draw Field, which was discovered with the currently
shut in well, is confirmed by the Montana Berger Well #1. The confirmation
well has produced approximately 14,000+ barrels as of January 31, 1998, water
free, and is currently flowing at 130 BOPD with 900 psi surface pressure on
6/64" choke. It is produced on a restricted flow to limit wellborn draw down
to 100 psi maximum to avoid water "coming" or the fracturing of the semi-
unconsolidated sands coming through naturally fractured dolomite separating
sands. Because of oil price volatility at the time of the report, no
economic analysis was performed by Mr. Stone. Mr. Stone also indicated that
one or more delineation wells were required to totally validate the prospect
14
<PAGE>
structure. Since Mr. Stone's report, the Company has not engaged for its own
account, nor has it engaged in conjunction with the other Participants, a
petroleum engineer to complete any additional reports on the Prospect. All
information contained Mr. Stone's report was as of January 1998.
Delivery Commitments
- ---------------------
Subsequent to the Company's year ended December 31, 1998, the Operator
entered into a six month contract with Eighty Eight Oil Company of Casper,
Wyoming. Eighty Eight Oil Company has agreed to purchase all production from
the Montana Berger Wells #1 and #2 during that period. (See "BUSINESS,
Distribution Methods of the Company's Products" and "Competitive Position in
the Industry".) Under the purchase agreement, the Operator is not obligated to
provide a fixed and determinable quantity of oil.
Present Activities
- ------------------
The Company currently has no activities except sale of production on
its two producing wells. The Company had intended to participate in the
drilling of a third development well on the Prospect in October of 1998;
however, due to the extremely low price of oil in the market, the Program
elected not to spud a new well. The Company may be faced with making a
decision as to whether or not to participate in a third well in mid to late
spring of 1999 although such decision will likely be postponed by the Program
because of the record low oil prices. The Company is currently seeking other
types of investment opportunities not related to the oil and gas industry.
(See "DESCRIPTION OF BUSINESS, BUSINESS DEVELOPMENT".)
INVESTMENT POLICIES
The Company has no investment in any real estate interests or real
estate other than its working interest in the Prospect. It has no investment
in any real estate mortgages, or securities or interests in persons primarily
engaged in real estate activities, nor, as of the date, hereof does the
Company intend to invest in any of the foregoing. The Company will, however,
consider investing in other oil and gas leases, when and if management deems
it in the Company's best interests to do so. It may also invest in production
interest or other leases. In addition, the Company may elect to invest in
other oil and gas related enterprises, which could consist of acquiring
companies which have business purposes or interests related to oil and gas,
and purchasing additional interest if available in the Program or other
drilling programs. As of the date hereof, however, management has postponed
making any decisions as to future investment in the oil and gas industry due
to the extremely low price of oil in the market, which does not appear to be
recovering significantly, and is investigating other types of business
opportunities.
OFFICES
The Company rents office space in Salt Lake City, Utah, on a month to
month basis at a monthly rate of $260 per month including telephone. The
office is sufficient to conduct the day to day operations of its business.
There is no written lease in effect.
15
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any pending legal proceedings and, to the
best of its knowledge, no such action by or against the Company has been
threatened. None of the Company's officers, directors, or beneficial owners
of 5% or more of the Company's outstanding securities is a party to
proceedings adverse to the Company nor do any of the foregoing individuals
have a material interest adverse to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the year ended December 31, 1998, no matter was submitted to a
vote of security holders.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
MARKET INFORMATION
Although the Company received its symbol for listing on the OTC Bulletin
Board of the National Association of Securities Dealers, Inc. (the "NASD")on
December 11, 1998, namely "SWWV", no trading activity had commenced as of
December 31, 1998, the date of the financial statements included in this
Report. Since December 31, 1998, an extremely limited market has commenced.
The high and low bids for the two months ended January and February, 1999 were
$0.13 and $0.10, respectively. Such over-the-market quotations reflect inter-
dealer prices, without retail markup, mark-down or commission, and may not
necessarily represent actual transactions. However, because of the extremely
limited trading activity, the Company believes that there is not, as of this
date, an "established" trading market.
DIVIDEND POLICY
No dividends have been paid by the Company since its inception. The
payment by the Company of dividends, if any, in the future, rests within the
discretion of its Board of Directors and will depend, among other things, upon
the Company's earnings, its capital requirements and its financial condition,
as well as other relevant factors. The Company has not paid or declared any
dividends to date due to its present financial status. The Company does not
anticipate paying dividends on its common stock in the foreseeable future but
plans to retain earnings, if any, for the operation and expansion of its
business. There are no restrictions that limit the ability to pay dividends on
common equity or that are likely to limit the same in the near future.
HOLDERS
There are 44 shareholders of record of the Company's common stock as of
December 31, 1998.
RECENT SALES OF UNREGISTERED SECURITIES
There have been no recent sales of unregistered securities other than
those previously reported on in the Company's Registration Statement on Form
10-SB filed on July 14, 1998 and amended on September 28, 1998, and in the
Company's Quarterly Report on Form 10QSB for its quarter ended September 30,
1998. (See "Item 13. EXHIBITS AND REPORTS ON FORM 8-K".)
16
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion provides information which management believes
is relevant to an assessment and understanding of the Company's plan of
operation. The discussion should be read in conjunction with the consolidated
financial statements and notes thereto.
RESULTS OF OPERATIONS
The Company has received revenues from operations since October of 1997
when it received its first revenues from oil production from the Montana
Berger Well #1. A second well, the Montana Berger Well #2 began production in
April of 1998.
YEARS ENDED DECEMBER 31, 1998 AND 1997: The Company had net income of
$3,381 for the year ended December 31, 1998, as compared to a net loss of
$31,153 for 1997. The Company had revenues from oil production in 1998 of
$76,903 compared to revenues of $22,007 in 1997. The change from net loss to
net income from 1997 to 1998 is attributable to an increase in oil production
revenues. Although the Company saw a total overall increase in expenses from
1997 to 1998 of $20,057, the increase in oil production revenues was over
$54,000. The increase in production is due to the fact that the Company
realized revenues from production for only a little over two months in 1997 as
opposed to a full year in 1998.
General administrative expenses increased from $13,478 in 1997 to
$21,367 in 1998. This increase was due to the commencement of the payment of
compensation to an officer of the Company of $1,000 per month beginning in
February of 1998, for various services rendered on behalf of the Company in
connection with her duties as Secretary/Treasurer, in-house accounting,
initial drafting of various documentation including the Company's offering
memorandum, dated March 16, 1998, its Registration Statement on Form 10-SB,
and amendments thereto, and other required disclosure documentation. (See
"Item 10. EXECUTIVE COMPENSATION".)
The Company changed legal counsel during 1998 and significantly reduced
its legal fees from $30,340 in 1997 to $6,389 in 1998. Depreciation expenses
rose from $228 in 1997 to $742 in 1998 and cost depletion on the Company's
wells rose from $1,705 in 1997 to $17,558 in 1998. The Company recognizes cost
depletion based upon the production from its wells as compared to total
estimated reserve quantities of the wells and therefore cost depletion levels
are a function of production quantities.
The Company funded mineral property investments in 1998 by selling
shares of its common stock to public investors for cash in the amount $48,910.
In addition, the Company received cash advances from an officer and director
in the amount of $11,200, which was repaid out of production revenues; $2,311
was repaid in 1998 and the balance was repaid in January of 1999. An
additional $9,764 of the costs of mineral property investment came from
production revenues. In 1997, the Company funded its initial mineral
property investment of $74,325 from proceeds of an offering in which 1,000,000
shares were purchased by investors for gross proceeds to the Company of
$100,000. It also received a cash advance from an officer and director of
$9,000 which was converted into 90,000 shares of common stock in January of
1998. The foregoing 90,000 shares are "restricted".
17
<PAGE>
When comparing the Company's fourth quarter in the years ended 1997 and
1998, the Company attributes the increased income in the fourth quarter of
1998 to the fact that the Company received production revenues from two wells
in the fourth quarter of 1998 compared to production revenues from only one
well in the comparable quarter of 1997. However, although production almost
doubled in the fourth quarter of 1998 compared to the fourth quarter of 1997,
the Company's revenues from production did not. This is due to the fact that
oil prices in the market in the fourth quarter of 1998 were significantly
lower. The Company received an average of $13.50 per barrel of oil in the
fourth quarter of 1997 compared with an average of $5.18 per barrel during
that same quarter in 1998. Expenses associated with production activities
increased for the Company in the fourth quarter of 1998 due to increases in
well operation expenses as a result increased production and increased
relative percentage of equipment maintenance and repair expenses.
YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996. The Company
had a net loss of $14,728 as of December 31, 1996, which increased to $31,153
in 1997. The increase in net loss was due to an increase in the Company's
legal expenses. The Company did not receive any revenues from operations in
1996, as opposed to its year ended 1997 when it received revenues from oil
production of $22,700. In connection with its initial revenues from
operations in 1997, which began in mid-October, the Company also incurred
related production expenses and taxes totaling $7,409. The Company had no
production expenses or production taxes in 1996. General and administrative
costs in 1997 were $13,478 as opposed to $14,728 in 1996, which makes 1996
expenses proportionately higher because the Company's year ended 1996 was not
a full year (the Company's inception being May 7, 1996), and is mainly
attributable to costs related to start-up. Legal expenses in 1997 were
$30,340 as opposed to -0- in 1996 and were incurred in connection with the
drafting of the Company's first offering memorandum.
The Company funded its losses in 1996 through the issuance of shares of
common stock for cash contributions which equaled $14,728. In 1997, the
Company conducted an offering of 1,000,000 shares of its common stock to the
public and received gross proceeds of $100,000, and net proceeds of $82,400,
$74,345 of which went to the Company's initial investment in mineral property
(the Prospect).
LIQUIDITY AND CAPITAL RESOURCES.
The Company has had revenues from operations in each of the last two
years. The Company's cash requirements consist of its office expenditures,
legal and accounting fees to comply with securities registration filing
requirements, oil production taxes and expenses, and certain consulting fees.
The Company relies on revenues from operations to cover its cash requirements.
During the last year revenues were sufficient to meet the Company's cash
requirements to fund day to day operations as well as a portion of mineral
property investments. The Company also relied on sales of its common stock and
advances from an officer and director to fund the balance of its mineral
property investments. The Company anticipates that it will have sufficient
revenues in 1999 to fund its operations, provided it continues to receive
revenues from oil production. Revenues from oil production to the Company,
however, have decreased due to the significant decrease in the price per
barrel of oil in the marketplace, and an increase in associated production
expenses which began in the fourth quarter ended December 31, 1998. The
Company expects lower oil prices to persist throughout 1999. However, the
Program has been receiving a larger than normal bonus per barrel for its low
gravity, high asphalt crude oil due to a reduced supply of the same in the
18
<PAGE>
market. The higher than normal bonus will continue at least through the end
of the Company's second quarter, if not longer.
As a working interest owner in the Prospect, the Company could incur
production expenses in the next year which exceed revenues if well
administration expenses continue to increase and oil prices drop even further.
In addition, the Company could incur its proportionate share of additional
expenses associated with equipment repair, maintenance and/or replacement as
well as water disposal and road repairs in connection with the operation of
the two wells. If the Company's share of these expenses is too high, the
Company may not have sufficient revenues to pay such additional expense(s).
Also, the Company's oil wells are water driven and as the water continues to
encroach as expected, the operating costs will continue to increase as a
percent of revenues. (See "BUSINESS, Costs and Effects of Compliance with
Environmental Laws".) The Company must rely on the Operator of the wells to
make decisions as to whether or not the continued operation of the wells is
economical. The well operator's decision to shut-in one or both of the wells
may not occur at the same point in time as the Company would like it to occur.
As part of its plans for growth, the Company had intended to participate
in an additional well(s) on the Prospect, as well as investigate opportunities
for purchasing additional interest in the Prospect, purchasing other oil and
gas leases, and/or making other oil and gas investments. Such expansion would
have been funded partially from revenues from operations, and from cash
contributions or loans from affiliates of the Company. In addition, the
Company also considered offering for sale additional shares of the Company's
common stock or some other debt or equity financings. Due to the condition of
the oil market, however, the Company has placed any such plans on hold.
Management does not believe that further investment in the oil and gas
industry is in the best interest of the Company until and unless the price of
oil in the market increases dramatically and stabilizes. Depressed oil prices
on a continued basis will adversely affect the Company's financial outlook.
YEAR 2000
Management believes that the Company's accounting and operational systems
are year 2000 compliant. Prior to the Company's filing of its last Quarterly
Report on Form 10-QSB, the Company contacted the Operator of the wells; the
Operator indicated to The Company that it expects no material year 2000 issues
because none of the systems used at the wells sites in which the Company has
an interest are run by computer systems. The Company is not dependent on
computers other than for its internal bookkeeping which is done on a system
that is Year 2000 compliant. The Company has no relationship with any third
parties which are dependent on computers other than its bank. The Company's
bank has reported that it is Year 2000 compliant.
FORWARD-LOOKING STATEMENTS
When used in this Form 10-KSB, in filings by the Company with the
Securities and Exchange Commission (the "SEC"), in the Company's press
releases or other public or stockholder communications, or in oral statements
made with the approval of an authorized executive officer of the Company, the
words or phrases "would be," "will allow," "intends to," "will likely result,"
"are expected to," "will continue," "is anticipated," "estimate," "project,"
or similar expressions are intended to identify "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
19
<PAGE>
The Company cautions readers not to place undue reliance on any forward
looking statements, which speak only as of the date made, are based on certain
assumptions and expectations which may or may not be valid or actually occur,
and which involve various risks and uncertainties. The Company's actual
results for future periods could differ materially from those anticipated or
projected.
Unless otherwise required by applicable law, the Company does not
undertake, and specifically disclaims any obligation, to update any forward-
looking statements to reflect occurrences, developments, unanticipated events
or circumstances after the date of such statement.
ITEM 7. FINANCIAL STATEMENTS
The following financial statements are included herewith. The Company's
audited Financial Statements for its years ended December 31, 1998 and 1997
and from inception on May 7, 1996 through its year ended December 31, 1996.
SW Ventures, Inc.
Audited Financial Statements
December 31, 1998 and December 31, 1997
Independent Auditor's Report..........................................F-1
Balance Sheet at December 31, 1998 and December 31, 1997..............F-2
Statement of Operations and Accumulated Deficit for the
years ended December 31, 1997 and 1998, and the period
from inception on May 7, 1996 though December 31, 1996................F-3
Statement of Cash Flows for the years ended December 31,
1997 and 1998 and the period from inception on May 7,
1996 though December 31, 1996.........................................F-4
Statement of Changes in Stockholder's Equity from May 7,
1996 to December 31, 1998.............................................F-5
Notes to Financial Statements.........................................F-6
20
<PAGE>
Randy Simpson C.P.A. P.C.
11775 South Nicklaus Road
Sandy Utah 84092
Fax & Phone (801)572-3009
Independent Auditor's Report
- ----------------------------
The Board of Directors and Stockholders of SW Ventures, Inc.:
We have audited the accompanying balance sheets of SW Ventures, Inc. (the
Company) as of December 31, 1998 and December 31, 1997 and the related
statements of operations, stockholders' equity, and cash flows for the years
ended December 31, 1998 and 1997 and the period from May 7, 1996 (inception)
through December 31, 1996. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about wether the financial statements are free of
material misstatements. 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 above mentioned financial statements fairly present, in
all material respects, the financial position of SW Ventures, Inc. as of
December 31, 1998 and December 31, 1997 and the results of its operations and
its cash flows for the year ended December 31, 1998 and 1997, and the period
from inception (May 7, 1996) through December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ Randy Simpson CPA
RANDY SIMPSON, CPA
A Professional Corporation
March 8, 1999
Salt Lake City, Utah
F-1
<PAGE> 21
SW Ventures, Inc.
Balance Sheets
December 31, 1998 and December 31, 1997
December 31 December 31
1998 1997
------------- --------------
ASSETS
Current Assets:
Cash $ 8,900 $ 8,424
Accounts receivable 3,748 5,878
Inventory 292 1,870
------------- --------------
Total Current Assets 12,940 16,172
------------- --------------
Mineral Property & Equipment:
Mineral property 144,200 74,325
Less cost depletion (19,263) (1,705)
Office equipment 4,291 1,953
Less accumulated depreciation (970) (228)
------------- --------------
Net Mineral Property &
Equipment 128,258 74,345
------------- ---------------
Total Assets $ 141,198 $ 90,517
============= ===============
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 4,125 12,648
Advances from officer 8,889 9,000
------------- --------------
Total Current Liabilities 13,014 21,648
Stockholders' Equity:
Common Stock, $.001 par value; authorized
50,000,000 shares, issued and outstanding
3,416,066 shares on December 31, 1998
and 3,000,000 on December 31, 1997 3,416 3,000
Paid-in capital 167,268 111,750
Accumulated deficit (42,500) (45,881)
------------- --------------
Total Stockholders' Equity 128,184 68,869
------------- --------------
Total Liabilities &
Stockholders' Equity $ 141,198 $ 90,517
============= =============
See accompanying notes to financial statements
F-2
<PAGE> 22
SW Ventures, Inc.
Statement of Operations and Accumulated Deficit
Years Ended December 31, 1998 and 1997, and
the period from inception (May 7, 1996) though December 31, 1996
From
Inception
For the For the (May 7, 1996)
Year Ended Year Ended to
December 31 December 31 December 31
1998 1997 1996
----------- ----------- -----------
Oil revenue $ 76,903 $ 22,007 $ -
Oil production costs & taxes 27,466 7,409 -
General & administrative expenses 21,367 13,478 14,728
Legal & professional fees 6,389 30,340 -
Depreciation expense 742 228 -
Cost depletion 17,558 1,705 -
----------- ----------- -----------
Total expenses 73,522 53,160 14,728
----------- ----------- -----------
Net income (loss) 3,381 (31,153) (14,728)
Accumulated deficit -beginning of year (45,881) (14,728) -
----------- ----------- -----------
Accumulated deficit - end of year $ (42,500) $ (45,881) $ (14,728)
=========== =========== ===========
Net income (loss)per common share $ .001 $ (0.021) $ (0.009)
=========== =========== ===========
Weighted average shares outstanding 3,295,363 2,202,083 1,615,232
=========== =========== ===========
See accompanying notes to financial statements
F-3
<PAGE> 23
SW Ventures, Inc.
Statement of Cash Flows
For the Years Ended December 31, 1998 and 1997
and from Inception (May 7, 1996) to December 31, 1996
<TABLE>
<CAPTION>
For the For the From Inception
Year Year (May 7, 1996)
Ended Ended to
December 31, December 31, December 31,
1998 1997 1996
-------------- -------------- ----------------
<S> <C> <C> <C>
Cash flows used in operating activities:
Net income (loss) $ 3,381 $ (31,153) $ (14,728)
Adjustments to reconcile net loss
to net cash used in operating activities:
Common stock issued for services - 4,500 850
Depreciation expense & cost depletion 18,300 1,933 -
Changes to operating assets & liabilities:
Decrease(Increase) in accounts receivable 2,130 (5,878) -
Decrease(Increase) in inventory 1,578 (1,870) -
(Decrease)increase in accounts payable (8,523) 1,745 10,903
-------------- -------------- ---------------
Net cash provided (used) by operating activities 16,866 (30,723) (2,975)
Cash flows used in investing activities:
Purchase of equipment & properties (72,213) (76,278) -
-------------- -------------- ---------------
Net cash used in investing activities (72,213) (76,278) -
Cash flows from financing activities:
Offering costs for common stock issuance - (5,750) (11,850)
Common stock issued for cash 46,934 103,000 24,000
Advances from officers 8,889 9,000 -
-------------- -------------- ---------------
Cash provided by financing activities 55,823 106,250 12,150
Net increase (decrease) 476 (751) 9,175
Cash, beginning period 8,424 9,175 -
-------------- -------------- ---------------
Cash, end of period $ 8,900 $ 8,424 $ 9,175
============== ============== ===============
Supplemental non-cash financing activities
issuance of common stock for loan from
affiliate $ 9,000 $ - $ -
============== ============= ===============
No cash paid for income taxes or interest.
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 24
SW Ventures, Inc.
Statement of Changes in Stockholders' Equity
From May 7, 1996 (Inception) to December 31, 1998
<TABLE>
<CAPTION>
$.001
Par value
Common Common Accumu-
Stock Stock Paid-in lated Total
Shares Amount Capital Deficit Equity
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Shares issued to founders
on May 7, 1996 1,475,000 $ 1,475 $ 9,525 $ - $ 11,000
Shares issued for legal fees
(securities registration)
on May 7, 1996 115,000 115 735 - 850
Shares issued for cash on
December 6, 1996 260,000 260 12,740 - 13,000
Net loss for the period from
May 7, 1996 (inception)
through December 31, 1996 (14,728) (14,728)
----------- ---------- ---------- --------- ----------
Balances, December 31, 1996 1,850,000 1,850 23,000 (14,728) 10,122
Shares issued for cash
May 16, 1997 60,000 60 2,940 - 3,000
Shares issued for compensation
May 16, 1997 55,000 55 2,695 - 2,750
Shares issued for legal fees
(securities registration)
on May 16, 1997 35,000 35 1,715 - 1,750
Shares issued for cash (private
placement offering) on
September 26, 1997 net of
offering costs of $17,600 1,000,000 1,000 81,400 - 82,400
Net loss for the year ended
December 31, 1997 (31,153) (31,153)
----------- --------- ---------- --------- ---------
Balances, December 31, 1997 3,000,000 3,000 111,750 (45,881) 68,869
Shares issued to officer upon
conversion of loan in
January, 1998 90,000 90 8,910 9,000
Shares issued for cash (in
private placement offering)
net of offering costs of
$1,976: (275,000 in April;
27,646 in June; 23,420
in Sept.) 326,066 326 46,608 46,934
Net gain for year ended
December 31, 1998 3,381 3,381
---------- --------- --------- --------- -----------
Balance at December 31,1998 3,416,066 $ 3,416 $167,268 $( 42,500)$ 128,184
========== ========== ========= ========= ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 25
SW Ventures, Inc.
Notes to Financial Statements
A. Origination and Accounting Policies
-----------------------------------
SW Ventures, Inc. (the "Company") was incorporated May 7, 1996 as a
Nevada corporation. The Company reviewed certain business opportunities
during 1996 and on June 19, 1997 conducted a stock offering under Rule 504 of
Regulation D, Section 3(b) under the Securities Act of 1933, as amended. The
offering closed on September 26, 1997 with proceeds of $100,000 being received
by the Company.
The Company invested as a working interest partner in an oil drilling
program in Crook County, Wyoming. The Company invested $74,325 in the
drilling and completion of an oil well located in Crook County, Wyoming. The
Company owns a 21.25% working interest in the well. The well, the Montana
Berger #1, has produced approximately 50,730 barrels of crude oil from its
successful completion in October, 1997 through December 1998. The well
averaged during 1998 approximately 100 barrels of oil per day. The prospect
includes a 320 acre lease on which additional wells may be drilled.
The Company conducted a second offering under Rule 504, in March of
1998 which closed in September of 1998 with 326,066 shares sold for gross
proceeds of $48,909. In March of 1998, the Company invested an additional
$69,875 for the drilling and completion of a second well in the same program,
the Montana Berger #2 which began production in mid-April 1998. The Company
funded the its share of the second well from offering proceeds, revenues from
production and a loan from an officer and director. Since then, the Montana
Berger #2 has produced approximately 23,324 barrels of crude oil with average
production during 1998 equaling approximately 90 barrels of oil per day.
B. Mineral Properties, Equipment, Accounts Receivable and Inventory
----------------------------------------------------------------
Mineral property and equipment are stated at cost. The Company
accounts for its oil and gas exploration activities utilizing the full cost
method of accounting. Exploration costs, including geological and
geophysical costs, costs for drilling and completing wells (both geophysical
costs, costs for drilling and completing wells (both successful and dry holes)
are capitalized and depleted to expense over the total recoverable oil and gas
reserves of the Company's properties.
Mineral properties include the acquisition costs of a 320 acre mineral
lease and an oil well which was drilled and completed on October 7, 1997. The
Company invested $74,325 for the drilling and completion of this well. The
total acreage acquisition costs were $11,330 and $62,995 was invested in the
drilling and completion of the oil well. The second well, drilled in April of
1998, cost the Company $69,875. The Company is depleting its investment in oil
an gas properties based on the yearly oil production (in barrels) divided by
the estimated recoverable reserves (in barrels) of the well or more commonly
referred to as the units of production method. The Company recorded cost
depletion of $17,558 based upon total production of barrels for 1998. The
total estimated reserves of the wells are approximately 380,000 barrels at
December 31, 1998. The Company was receiving a price of $3.52 to $3.66 per
barrel at December 31, 1998, and these reserve estimates were based upon that
price.
F-6
<PAGE> 26
SW Ventures, Inc.
Notes to Financial Statements
Accounts receivable represent the net oil production received in January
1999 for December 1998 oil production and inventory represents the value of
the oil on site which was unsold on December 31, 1998.
C. Related Party Transactions.
---------------------------
The Company issued 1,475,000 shares to its founders in consideration of
$11,000 in cash at the inception of the Company. An additional 60,000 and
260,000 shares were issued for cash advances totaling $16,000 from the
president of the Company during 1996 and early 1997. Legal counsel was issued
150,000 shares for services in 1996 and 1997, at $0.007 and $0.05 per share,
respectively. Also in 1997, 55,000 shares were issued to the Company's
Secretary/Treasurer for services at $0.05 per share. In January of 1998,
90,000 shares were issued to an officer and director in satisfaction of a loan
for $9,000.
D. Operating Leases and Contingent Liabilities
-------------------------------------------
The Company rents its office space on a month to month basis at $260 per
month. This agreement is cancelable at any time without notice.
E. Supplemental Information on Oil Producing Activities
---------------------------------------------------
The Company drilled and completed the Montana Berger Well #1 in October
of 1997. The following financial and reserve data reflect only the activities
of the Montana Berger Well #1 in 1997. The Company drilled and completed the
Montana Berger Well #2 in April of 1998, which activities are reflected in the
1998 reserve data. The Company has future drill sites for approximately 4 more
wells on the Prospect. However, it does not consider these drill sites to be
proved reserves at this point in time.
The following disclosures provide unaudited information required by SFAS
No. 69, "Disclosures About Oil and Gas Producing Activities."
RESULTS OF OPERATIONS FOR OIL PRODUCING ACTIVITIES
Year Ended December 31, 1997
- ----------------------------
Revenues............................................$ 22,007
Production Costs ................................... (5,583)
Depreciation, depletion & amortization.............. (1,705)
Taxes other than income............................. (1,823)
Income tax expense.................................. 0
---------
Results of operations for producing activities......$ 12,896
=========
Year Ended December 31, 1998
- ----------------------------
Revenues............................................$ 76,903
Production Costs.................................... (18,728)
Depreciation, depletion & amortization.............. (17,558)
Taxes other than income............................. ( 8,738
Income tax expense.................................. 0
---------
Results of operations for producing activities......$ 31,879
=========
F-7
<PAGE> 27
SW Ventures, Inc.
Notes to Financial Statements
CAPITALIZED COSTS RELATED TO OIL AND GAS PRODUCING ACTIVITIES
Well Costs (Drilling and Completion)............... $132,870
Mineral Property Acquisition Costs (Proved)........ 11,330
---------
Total Capitalized Costs............................ $144,200
=========
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATED TO PROVED OIL
RESERVES.
The standardized measure of discounted future net cash flows relating to
the Company's ownership interest in oil reserves at year end, December 31,
1998 is as follows:
1998 1997
--------- ----------
Future cash inflows................................$ 240,314 $ 484,930
Future oil operating and tax expenses.............. ( 93,328) (103,800)
Future income tax expenses - benefit ............. 4,769 (25,854)
---------- ----------
Future net cash flows.............................. 151,755 355,276
10% annual discount for estimating timing of
cash flows...................................... (43,279) (54,293)
---------- ----------
Standardized measure of discounted future
net cash flows................................. $ 108,476 $ 300,983
========== ==========
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
Changes in standardized measure of future net cash flows relating to
proved oil reserves are summarized below:
Balance at Dec. 31, 1996................................$ 0
Sales and transfers of oil produced,
net of production costs................................ (14,601)
Extensions, discoveries and improved recoveries
net of future production and development
costs.................................................. 315,584
-----------
Balance, December 31, 1997.............................. 300,983
Sales and transfers of oil produced,
net of production costs................................ (49,437)
Extensions, discoveries and improved recoveries
net of future production and development costs......... 66,347
Reduction in reserves due to decline in oil prices...... (198,010)
Reduction in reserves - volume/decline curve
adjustments............................................ (11,407)
-----------
Balance at December 31, 1998............................$ 108,476
===========
F-8
<PAGE> 28
SW Ventures, Inc.
Notes to Financial Statements
RESERVE QUANTITY INFORMATION
The following summarized the policies used by the Company in preparing the
accompanying oil reserve disclosures.
The Company has only proved developed reserves. Proved developed reserves
are proved reserves that can reasonably be expected to be recovered through
existing wells with existing equipment and operating methods.
Oil (BBLS)
Proved Reserves 1998 1997
- --------------- ----------- ----------
Balance at beginning of period 48,940 0
Extensions discoveries and other additions........... 33,684 50,471
Production........................................... (11,391) (1,531)
Changes in estimates - price decline................. (3,538) 0
----------- -----------
Balance, at end of period............................ 67,695 48,940
=========== ===========
The Company has no natural gas reserves.
F-9
<PAGE> 29
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Set forth below is certain information concerning each of the directors
and executive officers of the Company as of December 31, 1998.
Name Age Position Held & Since
- -------------------------------- ------ --------------------------
Guido Cloetens 33 President, Chairman of the
Kampenhoutsebaan 100A Board of Directors, Chief
1982 Elewijt Zemst, Belgium Executive Officer
Since May 1996
Terri Jackson 45 Secretary/Treasurer and a
3483 S. 3170 E. Director
Salt Lake City, UT 84109 Since May 1996
Keith Biesinger, Esq. 54 Director
3200 Big Cottonwood Rd. Since March 13, 1998
Salt Lake City, Utah 94121
BIOGRAPHICAL INFORMATION ON OFFICERS AND DIRECTORS
Guido Cloetens, age 33, is the President, Chief Executive Officer and
Chairman of the Board of Directors of the Company. From 1988 to 1989 Mr.
Cloetens was a representative of DAIWA Securities, Inc., in Brussels, Belgium,
engaged in selling Japanese equities. In 1990, Mr. Cloetens worked as an
investment advisor for PBI Securities, Inc. in Amsterdam, Holland. From 1991
to 1994, Mr. Cloetens was a manager of client accounts for institutional
investors with Kredietbank in Brussels. From May 1994 to November 1995, Mr.
Cloetens was the owner/manager of Pyros Consulting, a Belgium corporation
engaged in the financial consulting business. Pyros Consulting was sold in
1995. Since then, Mr. Cloetens has been self-employed as a businessman with an
interest in several private companies. The Company intends to employ Mr.
Cloetens, or an entity to be formed by Mr. Cloetens, as a consultant and/or
management/consulting firm in the future. (See "Transactions Between the
Company and Management.") Mr. Cloetens successfully completed a post
university program as investment advisor at the EHSAL Management School in
Brussels in 1992. He also attended courses in economics and accounting at the
Catholic University of Leuven in Belgium followed with a post university
program "Corporate Finance and Investment and Financial Statements Analysis at
the University of Brussels in 1984 - 1986.
Terri Jackson, age 45, is the Secretary/Treasurer and a director of the
Company. Ms. Jackson is the author of "Glide's Garden", published in 1977 in
England by Oreal Press, London, England as well as a contributing writer to
the Hudson-Mohawk SIDS Alliance Newsletter. From 1977 to 1987, Ms. Jackson
worked as an employee of Intermountain Plant Works, and was promoted to
operations manager from 1984-1987. Ms. Jackson was a founding member and on
the Board of Trustees of the Broadway Stage, a live theater in Salt Lake City,
Utah, from 1989-1991. From 1989 to the 1996, Ms. Jackson worked as a legal
30
<PAGE>
assistant to an attorney in Salt Lake City, Utah specializing in corporate and
securities law. In late 1996, Ms. Jackson co-founded Data Electronic Filing
*Service, L.C., a company established to assist lawyers, accountants and
public companies with SEC. mandatory electronic filing requirements. Data
Electronic Filing Service, L.C. is a registered SEC EDGAR filing agent.
Currently, Ms. Jackson also works as an independent paralegal providing
services to various attorneys in the area of securities and corporate law.
Keith Biesinger, Esq., age 54, was appointed an interim Director by the
Company's Board of Directors on March 13, 1998, to serve the unexpired portion
of a term held by Ms. Lise-Lotte Ruzicka Newell who resigned on March 13,
1998. Mr. Biesinger is a member of the Utah State Bar Association and has
practiced law in Salt Lake City, Utah for numerous years. He is also a member
of Safari Club International, Sierra Club, Ducks Unlimited, and the World
Wildlife Fund. Currently, in addition to his position with the Company, he
serves as a trustee of The Gun Club, a Utah non-profit corporation. His
interests are shooting sporting clays, fly fishing, hiking and traveling.
Executive officers of the Company are elected by the Board on an annual basis
and serve at the discretion of the Board.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a)of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors and persons who beneficially own more
than 10% of the Company's common stock to file initial reports of ownership
and reports of changes in ownership with the Securities and Exchange
Commission. Such persons are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms filed by such persons.
Based solely on the Company's review of such forms furnished to the
Company and representations from certain reporting persons, management
believes that all filing requirements applicable to the Company's executive
officers, directors and more than 10% stockholders were complied with during
the year ended December 31, 1998, except those of Mr. Keith Biesinger. Mr.
Biesinger, a director of the Company, failed to file his Form 3 "Initial
Statement of Beneficial Ownership" in a timely manner. Mr. Biesinger does
not, and has never, owned any securities of the Company and filed his initial
report on Form 3 so stating, on or about February 22, 1999.
[This space intentionally left blank]
31
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth certain information as to the Company's
Chief Executive Officer and each of the Company's officers and directors who
have received compensation for the years ended December 31, 1996, December 31,
1997, and December 31, 1998.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
----------------------------------------------------------------------
Annual Compensation Awards Payouts
- ------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other All
Name Annual Restricted Other
and Compensa- Stock Underlying LTIP Compensa-
Principal sation Award Options/ Payouts tion
Position Year Salary($) Bonus($) ($) ($) SAR's(#) ($) ($)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Guido Cloetens(1) 1996 -0- -0- -0- -0- -0- -0- -0-
Kampenhoutsebaan 100A 1997 -0- -0- -0- -0- -0- -0- -0-
1982 Elewijt-Zemst 1998 -0- -0- -0- -0- -0- -0- -0-
Belgium
President, Chairman
of the Board, CEO
Terri Jackson(2) 1996 -0- -0- -0- -0- -0- -0- -0-
3483 South 3170 East 1997 -0- -0- -0- $2,750(3) -0- -0- -0-
Salt Lake City, UT 1998 -0- -0- $10,100 $ 900(3) -0- -0- -0-
84109
Secretary/Treasurer
Director
Keith Biesinger 1996 -0- -0- -0- -0- -0- -0- -0-
3200 Big Cottonwood 1997 -0- -0- -0- -0- -0- -0- -0-
Salt Lake City, UT 1998 -0- -0- -0- -0- -0- -0- -0-
84121
Director
Lise-Lotte (Ruzicka) 1996 -0- -0- -0- -0- -0- -0- $ 1000(5)
Newell(4) 1997 -0- -0- -0- -0- -0- -0- -0-
Director
(1) The Company has agreed to pay Mr. Cloetens or an entity yet to formed by Mr. Cloetens,
$2000 per month for consulting services. As of the date hereof, the agreement between the
Company and Mr. Cloetens has not been finalized. (See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
(2) Terri Jackson has been receiving $1,000 per month starting in February 1998 for various
services rendered on behalf of the Company in connection with her duties as
Secretary/Treasurer, in-house accounting, initial drafting of various documentation
including the Company's offering memorandum, dated March 16, 1998, its Registration
Statement on Form 10-SB, and amendments thereto, and other required disclosure
documentation. There is no employment agreement in effect with Ms. Jackson.
(3) Ms. Jackson received 55,000 shares of the Company's unregistered common stock for
services rendered to the Company in her capacity of Secretary Treasurer for the period
from inception in May of 1996 through May of 1997. The shares were given a deemed value
of $0.05 per share based on the following: that the par value of the stock was $0.001,
that there was no trading market for the Company's common shares, and that the Company
was preparing to commence an offering of its common stock at $.10 per share. The price
of $.05 was the price utilized by Mr. Cloetens to convert various loans made to the
Company into stock as of that same date. In addition, Ms. Jackson took stock in lieu of
approximately $ 900 in fees due her for services performed in April of 1998. Ms. Jackson
converted her outstanding fees due into 6,000 shares of stock at $.15 per share, the same
price per share as paid in the Company's offering which commenced on March 16, 1998. Ms.
Jackson currently owns 186,000 shares of the Company's stock.
32
<PAGE>
(4) Lise-Lotte Ruzicka Newell resigned in early 1997.
(5) Lise-Lotte Ruzicka Newell received $1,000 for her assistance in organizing the Company.
The $1,000 was not paid until September of 1997.
</TABLE>
COMPENSATION OF DIRECTORS
No cash fees or other consideration was paid to directors of the Company
for service on the Board during the year ended December 31, 1998.
Employment Agreements
The Company has no employment contracts in effect with any of the members
of its Board of Directors or its executive officers nor are there any
agreements or understandings with such persons regarding termination of
employment or change-in control arrangements. The Company has agreed to
compensate Ms. Jackson $1,000 per month for services rendered in her capacity
as Secretary/Treasurer of the Company, which includes in-house accounting, as
well as other services in connection with the initial drafting of the
Company's offering memorandum and its Registration Statement on Form 10-SB and
amendments thereto, prior to review by counsel. The Company has also agreed
to enter into a Consulting Agreement with Mr. Guido Cloetens, President, Chief
Executive Officer and a director of the Company, or an entity to be formed by
Mr. Cloetens for such purposes. The Company will compensate Mr. Cloetens or
such entity $2,000 per month when the agreement is consummated. (See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS".)
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Nevada law authorizes, and the Company's Bylaws and Certificate of
Incorporation provide for, indemnification of the Company's directors and
officers against claims, liabilities, amounts paid in settlement and expenses
in a variety of circumstances. Indemnification for liabilities arising under
the Act may be permitted for directors, officers and controlling persons of
the Company pursuant to the foregoing or otherwise. However, the Company has
been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
STOCK OPTIONS AND WARRANTS
There are no outstanding stock options or warrants.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following tables sets forth certain information with respect to the
beneficial ownership of the common stock of the Company as of December 31,
1998 for: (i) each person who is known by the Company to beneficially own more
than 5 percent of the Company's common stock, (ii) each of the Company's
directors, (iii) each of the Company's Named Executive Officers (defined
below), and (iv) all directors and executive officers as a group. As of
December 31, 1998, the Company had 3,416,066 shares of common stock
outstanding.
33
<PAGE>
<TABLE>
<CAPTION>
SECURITY OWNERSHIP OF OFFICERS AND DIRECTORS
- --------------------------------------------
Amount and
Title Nature of Percent(1)
of Principal Shareholders Beneficial of Class as
Class Name, Address & Position Ownership Current Date
- ----------- ------------------------- ------------ -------------
<S> <C> <C> <C>
Common Guido Cloetens 1,838,000
Kampenhoutsebaan 100A Sole Voting
1982 Zemst, Belgium Power 53.81%
-----------------------
President & Director
Chief Executive Officer
- ---------------------------------------------------------------------------
Common Terri Jackson 186,000
3483 South 3170 East Sole Voting
Salt Lake City, UT 84109 Power 5.44%
------------------------
Secretary/Treasurer &
Director
- ----------------------------------------------------------------------------
Common Keith Biesinger -0- 0%
32000 So. Big Cottonwood Rd.
Salt Lake City, Utah
---------------------------
Director
- -----------------------------------------------------------------------------
Officers and Directors as a Group 2,024,000 59.25%
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SECURITY OWNERSHIP OF OWNERS OF 5% OR MORE OF THE COMPANY'S OUTSTANDING SHARES
- -----------------------------------------------------------------------------
Amount and
Title Nature of Percent(1)
of Principal Shareholders Beneficial of Class as
Class Name, Address & Position Ownership Current Date
- ----------- ------------------------- ------------ -------------
<S> <C> <C> <C>
Common Guido Cloetens* 1,838,000
Kampenhoutsebaan 100A Sole Voting
1982 Zemst, Belgium Power 53.81%
- ---------------------------------------------------------------------------
Common Terri Jackson * 186,000
3483 South 3170 East Sole Voting
Salt Lake City, UT 84109 Power 5.44%
- ----------------------------------------------------------------------------
Common Trends, Inc. 190,000 5.56%
P.O. Box 156
Pond Street, Hibiscus Square
Grand Turk
Turks and Caicos Islands
British West Indies
- -----------------------------------------------------------------------------------
* Also an officer and director
34
<PAGE>
The Company is currently negotiating with a foreign entity regarding the
purchase of certain assets. No definitive agreements have been entered into
as of the date hereof, and there can be no assurance that a transaction will
be consummated. However, it is possible that if a definitive agreement is
entered into, it will result in a change of control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
There have been no material transactions in the past two years or
proposed transactions to which the Company has been or proposed to be a party
in which any officer, director, nominee for officer or director, or security
holder of more than 5% of the Company's outstanding securities is involved.
Although the Company intends to enter into an consulting agreement with Mr.
Cloetens or an entity to-be-formed by him in which he retains a controlling
interest, the amount involved in the transaction will not be more than $24,000
per year. Mr. Cloetens is currently serving as President of the Company,
Chief Executive Officer and Chairman of the Board. Mr. Cloetens, or an entity
to be formed by Mr. Cloetens, will provide management and consulting services
to the Company, including, but not limited to, shareholder relations for non-
US shareholders, financial advice, investigating and analyzing various
business opportunities, etc. The Company has agreed to pay Mr. Cloetens, or
the to be formed entity, $2,000 a month for its services. Although an
agreement has not been consummated, the Company expects to begin utilizing the
services of Mr. Cloetens in such capacity at such time as it believes revenues
from operations are sufficient to do so.
The Company issued 1,475,000 shares to its founders (including Mr.
Cloetens and Ms. Jackson) in consideration of $11,000 in cash at the inception
of the Company. An additional 60,000 and 260,000 shares were issued for cash
advances totaling $16,000 from the President of the Company, Guido Cloetens,
during 1996 and early 1997. The shares were given a deemed value of $0.05 per
share based on the following: (i)that the par value of the stock was $0.001,
(ii) that there was no trading market for the Company's common shares, and
(iii) that the Company was preparing to commence an offering of its common
stock at $.10 per share. Ms. Jackson received 55,000 shares of the Company's
unregistered common stock for services rendered to the Company in her capacity
of Secretary/Treasurer for the period from inception in May of 1996 through
May of 1997. The price of $.05 per share was the same price utilized by Mr.
Cloetens to convert various loans made to the Company into stock as of that
same date. In addition, Guido Cloetens converted a $9,000 loan to the Company,
made during 1997 and which was interest free, into 90,000 common shares of
restricted stock in January of 1998. Such loan was converted at the same
price paid by investors in the offering, $0.10 per share, which closed in
September of 1998. In addition, Ms. Jackson took stock in lieu of
approximately $ 900 in fees due her for services performed in April of 1998.
Ms Jackson converted her outstanding fees due into 6,000 shares of stock at
$.15 per share, the same price per share as paid by investors in the Company's
second offering which commenced on March 16, 1998. During the calendar year
ended December 31, 1998, Mr. Cloetens made loans to the Company approximating
$11,200, which loans were interest free. As of December 31, 1998, $2,311 was
repaid and the balance was repaid subsequent to the Company's year end.
The Company has no promoters other than its President and a director,
Mr. Guido Cloetens. Other than the consulting agreement discussed above,
which the Company intends to enter into with Mr. Cloetens (or his yet to be
formed entity), there have been no transactions which have benefitted or will
benefit Mr. Cloetens, either directly or indirectly.
35
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The following exhibits are filed as part of this Form 10-KSB for the
Company's year ended December 31, 1998.
(i)
Exhibit Exhibit Where Incorporated
No. Description(1) In this Report
- ---- ----------- -------------------
Registration Statement on Form 10-SB filed Part II
July 14, 1998 and amended on September 29,
1998(2)
Quarterly Report on Form 10-QSB for the Part II
quarterly period ended September 30,
1998(2)
(ii)
Exhibit
No. Description
- ------- -------------------------
3.1.1 Articles of Incorporation(3)
3.2.1 Bylaws and Amendments thereto(3)
10.1 Operating Agreement with L & J Operating Inc.(3)
27 Financial Data Schedule
(1) Summaries of all exhibits contained within this Report are modified in
their entirety by reference to these Exhibits
(2) These documents and related exhibits have been previously filed with the
Securities and Exchange Commission.
(3) Previously filed as part of the Company's initial Registration Statements
on 10-SB Registration, filed on July 14, 1998.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the fourth quarter
ended December 31, 1998.
36
<PAGE>
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.
SW Ventures, Inc.
(Registrant)
By: /s/ Guido Cloetens
---------------------
Date: March 22, 1999 Guido Cloetens
President, Chief Executive
Officer and Director
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
--------- -------- -------
/s/ Guido Cloetens President, Chief Executive March 22, 1999
- ------------------------ Officer and Director (Principal
Guido Cloetens Executive Officer)
/s/ Keith Biesinger Director March 22, 1999
- ------------------------
Keith Biesinger
/s/ Terri Jackson Director March 22, 1999
- ------------------------ Secretary/Treasurer
Terri Jackson
37
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's audited financial statements for its year ended December 31, 1998 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 8,900
<SECURITIES> 0
<RECEIVABLES> 3,748
<ALLOWANCES> 0
<INVENTORY> 292
<CURRENT-ASSETS> 12,940
<PP&E> 148,491
<DEPRECIATION> 20,233
<TOTAL-ASSETS> 141,198
<CURRENT-LIABILITIES> 13,041
<BONDS> 0
0
0
<COMMON> 3,416
<OTHER-SE> 124,768
<TOTAL-LIABILITY-AND-EQUITY> 141,198
<SALES> 76,903
<TOTAL-REVENUES> 76,903
<CGS> 0
<TOTAL-COSTS> 27,466
<OTHER-EXPENSES> 46,057
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,381
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,381
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,381
<EPS-PRIMARY> .001
<EPS-DILUTED> .001
</TABLE>
