<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-22349
PAN WESTERN ENERGY CORPORATION
(Exact name of registrant as specified in charter)
Oklahoma 73-1130486
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1850 South Boulder Avenue Tulsa, Oklahoma 74119
(Address of principal executive offices) (Zip Code)
(918) 582-4957
Registrants telephone number, including area code
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
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As of August 13, 1998, 3,621,873 shares of the Registrants Common Stock, $0.01
par value, were outstanding.
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TABLE OF CONTENTS
Part I. Financial Information.
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Item 1.
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Consolidated Balance Sheets (Unaudited) as of June 30, 1998 and as
of December 31, 1997.
Consolidated Statements of Operations (Unaudited) for the three
and six months ended June 30, 1998 and June 30, 1997.
Consolidated Statement of Changes in Stockholders' Equity
(Unaudited) for the six months ended June 30, 1998.
Consolidated Statements of Cash Flows (Unaudited) for the six
months ended June 30, 1998 and June 30, 1997.
Notes to Unaudited Consolidated Financial Statements for the six
months ended June 30, 1998 and June 30, 1997.
Item 2.
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Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Part II. Other Information.
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2
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ITEM 1. FINANCIAL STATEMENTS
PAN WESTERN ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
1998 December 31,
(Unaudited) 1997
----------- ------------
<S> <C> <C>
ASSETS
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Current Assets:
Cash 11,330 14,686
Restricted cash 112,454 344,147
Receivables:
Trade, net of allowance of $11,080 124,753 178,313
Due from stockholder 0 4,252
Due from affiliated partnerships 0 1,187
Prepaid expenses 54,614 20,350
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Total current assets 303,151 562,935
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Property and Equipment:
Oil and gas properties (successful efforts method) 2,955,534 2,955,683
Other property and equipment 380,883 378,419
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3,336,417 3,334,102
Less accumulated depreciation and depletion 1,102,915 974,668
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Net property and equipment 2,233,502 2,359,434
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Other assets 94,296 64,912
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Total Assets 2,630,949 2,987,281
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable 359,283 247,815
Undistributed oil and gas revenues 131,157 153,990
Due to affiliated partnerships 0 7,540
Accrued liabilities 28,409 15,688
Current portion of long term debt 715,486 769,564
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Total current liabilities 1,234,335 1,194,597
Long-term debt 1,621,286 1,669,628
---------- ----------
Total liabilities 2,855,621 2,864,225
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock ($.05 par value; authorized 25,000,000
shares; no shares issued or outstanding) 0 0
Common stock ($.01 par value; authorized 25,000,000
shares; issued 6/30/98 - 4,703,123 shares; 12/31/97 - 4,448,655) 47,031 44,487
Additional paid in capital 1,910,785 1,837,253
Accumulated deficit (1,963,506) (1,539,702)
Treasury stock (1,081,250 shares of common stock) (218,982) (218,982)
---------- ----------
Total stockholders' equity (224,672) 123,056
---------- ----------
Total Liabilities and Stockholders' Equity 2,630,949 2,987,281
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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PAN WESTERN ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUE:
Oil and gas sales 168,886 331,989 447,607 748,431
Operating income 24,576 37,683 43,313 60,029
---------- ---------- ---------- ----------
193,462 369,672 490,921 808,460
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Lease operating 92,837 164,096 208,488 342,102
Salaries and wages 108,274 92,400 198,945 186,368
Depreciation, depletion and amortization 64,829 78,483 129,659 156,965
General and administrative 144,911 94,784 254,664 211,972
---------- ---------- ---------- ----------
410,851 429,763 791,756 897,407
---------- ---------- ---------- ----------
OPERATING INCOME (LOSS) (217,389) (60,091) (300,835) (88,947)
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Loss from rental operations, net (2,643) (2,287) (6,388) (6,648)
(Loss) gain on sale of assets, net 2,450 674 3,295 44,277
Interest income 1,513 1,708 3,007 3,105
Interest expense (64,071) (52,374) (122,883) (103,850)
---------- ---------- ---------- ----------
(62,750) (52,279) (122,969) (63,116)
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (280,139) (112,370) (423,804) (152,063)
Income taxes 0 0 0 0
---------- ---------- ---------- ----------
NET INCOME (LOSS) (280,139) (112,370) (423,804) (152,063)
========== ========== ========== ==========
NET INCOME (LOSS) PER SHARE (0.08) (0.03) (0.13) (0.05)
========== ========== ========== ==========
Weighted average common shares 3,386,979 3,287,300 3,377,246 3,260,578
========== ========== ========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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PAN WESTERN ENERGY CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Additional Total
Common Paid-In Accumulated Treasury Stockholders'
Stock Capital Deficit Stock Equity
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1997 44,487 1,837,253 (1,539,702) (218,982) 123,056
Issuance of stock 2,544 73,532 76,076
Net Income (loss) (423,804) (423,804)
------------------------------------------------------------------
Balances, June 30, 1998 47,031 1,910,785 (1,963,506) (218,982) (224,672)
==================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
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PAN WESTERN ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, June 30,
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) (423,804) (152,063)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation, depletion and amortization 167,181 156,965
Other 20,928
(Gain) loss on sale of assets, net (3,295) (44,277)
(Increase) decrease in receivables 58,999 105,559
(Increase) decrease in prepaid expenses (34,264) 0
(Increase) decrease in other assets (29,384) (114)
Increase (decrease) in accounts payable 103,928 (114,971)
Increase (decrease) in due to stockholder 0 4,832
Increase (decrease) in accrued liabilities 12,721 1,210
Increase (decrease) in undistributed oil and gas revenues (22,833) (25,700)
-------- --------
Net cash provided by (used in) operating activities (149,824) (68,559)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures 2,465 (9,699)
Purchase of certificate of deposit 2,834 (2,719)
Proceeds from the disposal of oil and gas properties 3,656 127,500
-------- --------
Net cash used in investing activities 8,955 115,082
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 300,000 2,177
Repayment of long-term debt (402,420) (356,176)
Decrease (increase) in restricted cash 228,859 0
Proceeds from sale of common stock 11,073 161,890
-------- --------
Net cash provided by financing activities 137,512 (192,109)
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NET INCREASE (DECREASE) IN CASH (3,356) (145,586)
CASH, BEGINNING OF PERIOD 14,686 232,699
-------- --------
CASH, END OF PERIOD 11,330 87,113
======== ========
SUPLEMENTAL CASH FLOW INFORMATION:
Interest paid 100,162 91,119
======== ========
Income taxes paid 0 0
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
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PAN WESTERN ENERGY CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(1) Basis of Presentation. The consolidated financial statements included in
this report have been prepared by Pan Western Energy Corporation (the
"Company") pursuant to the rules and regulations of the Securities and
Exchange Commission for interim reporting and include all normal and
recurring adjustments which are, in the opinion of management, necessary
for a fair presentation. These financial statements have not been audited
by an independent accountant.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations for interim reporting. The Company believes that the
disclosures are adequate to make the information presented not misleading.
However, these financial statements should be read in conjunction with the
Company's financial statements and notes thereto for the years ended
December 31, 1997 and 1996. The financial data for the interim periods
presented may not necessarily reflect the results to be anticipated for the
complete year.
(2) Stockholders' Equity. On February 18, 1997, the Board of Directors approved
a four-for-one stock split effected in the form of a stock dividend. The
record date for the dividend was April 1, 1997. Common share, per share
data, and stockholders' equity amounts in the accompanying unaudited
consolidated financial statements and footnotes have been retroactively
adjusted to reflect this stock split.
(3) Sale of Common Stock. The Company completed a private placement of 15,000
shares of its common stock at $10 per share (75,000 shares at $2 per share
after giving effect to the stock split discussed in note 2) which was
issued pursuant to Regulation D under the Securities Act of 1933 in April,
1997.
Effective March 21, 1997, the Company amended and restated its Certificate
of Incorporation which has the effect, among others, of eliminating
shareholder preemptive rights to subscribe for additional shares of the
Company's Common Stock. Subsequent to March 31, 1997, the Company informed
those shareholders of the Company who, based upon their preemptive rights,
were entitled to acquire additional shares of Company Common Stock, of
their right to acquire such shares. Based upon the responses received, the
Company has issued 25,845 shares of Common Stock and has received
$11,888.91 in proceeds for these shares.
On September 1, 1997, the Company issued 33,000 shares of its Common Stock
to an individual as additional consideration for executing a promissory
note with the Company in the amount of $300,000. The note bears interest at
10 % per annum and matures on July 3, 1998. The note is secured by a second
mortgage on the Company's oil and gas properties located in Coal County,
Oklahoma.
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On May 15, 1998, the Company issued 33,000 shares of its Common Stock to an
individual as additional consideration for executing a promissory note with
the Company in the amount of $300,000. The note bears interest at 10 % per
annum and matures on July 3, 1998. The note is secured by a mortgage on the
Company's oil and gas properties located in Borden County, Texas.
On June 23, 1998, the Company issued 221,468 shares of its Common Stock to
the President of the Company pursuant to an exercise of options previously
granted to him. The Company received cash proceeds in the approximate
amount of $11,073 and recorded an additional $15,503 in wage and salary
expense in order to reflect the total fair market value of the Common Stock
issued.
(4) Registration of Common Stock. On April 7, 1997, the Company filed a Form
10-SB with the Securities and Exchange Commission. The purpose of this
filing was to register all issued and outstanding shares of the Company's
common stock and develop a public market for such common stock. The Company
was notified by the Securities and Exchange Commission that this filing was
declared effective on June 26, 1997.
(5) Earnings per common share. Net earnings per common share for the periods
presented has been computed based upon the weighted average number of
shares outstanding of 3,377,246 and 3,260,578 for the six months ended June
30, 1998 and 1997 respectively and 3,386,979 and 3,287,300 for the three
months ended June 30, 1998 and 1997 respectively.
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standard No. 128 ("SFAS No. 128,
Earnings Per Share") which is effective for annual and interim periods
ending after December 15, 1997.
The Company has adopted SFAS No. 128 and has restated earnings per share
for all periods presented in accordance with that statement. Outstanding
stock options and warrants have not been included in the calculation for
the periods ended June 30, 1998 and June 30, 1997 since their effect on
diluted loss per share is antidilutive.
(6) Subsequent Event. On July 1, 1998, the Company entered into a credit
facility agreement with an investment banking limited liability
partnership. The terms of the $7,420,000 credit facility include a maturity
of 4 years from the date of execution and an interest rate tied to the
prime rate of Citibank, N.A., New York. The credit facility is secured by a
first mortgage on all existing oil and gas properties of the Company. The
credit facility consists of a refinancing loan in the amount of $2,320,000
and a development loan broken into two separate tranches. The
refinancing loan proceeds are to be used to extinguish the existing debt on
the Company's oil and gas properties, to pay the expenses associated with
the transaction and to reduce the accounts payable of the Company. Tranche
A of the development loan, in the amount of $1,350,000 is to be used for
specific development projects on the Company's existing oil and gas
properties. Tranche B of the development loan, in the amount of $3,750,000,
is to be used to further develop the Company's existing
8
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oil and gas properties. However, this amount will not be funded unless
certain performance goals have been attained including certain oil and gas
production and reserve levels. All borrowing activity under the refinancing
loan must take place within sixty days of closing. All borrowing activity
under tranche A and tranche B of the development loan must be completed by
December 31, 1998 and June 30, 2000, respectively. Under the terms of the
credit facility, all proceeds from the sale of oil and gas produced from
the properties is to be used to first pay all oil and gas operating
expenses, then to fund a general and administrative allowance, and then to
be applied to interest and principal. In addition, the Company is required
to make minimum quarterly principal reductions until July, 2000 at which
time a total minimum principal reduction of $725,000 will have been made.
As additional consideration, the Company granted a net profits overriding
royalty on all of its production under which payments commence upon
maturity or prepayment of all interest and principal. In addition, the
Company issued 200,000 warrants exercisable at $2.00 per share until June
30, 2003. On July 3, 1998, the Company borrowed all proceeds available
under the refinancing loan and subsequently disbursed the funds
accordingly.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
DISPOSITION OF OIL AND GAS PROPERTIES.
The Company closed the sale of all of its oil and gas properties located in
the state of Kansas effective February 1, 1997. This sale included 7 gross (5.6
net) wells which had daily gross production of 20.5 (12.9 net) barrels of oil
per day. Total proved developed oil reserves for these properties at December
31, 1996 were 33,010 barrels of oil. The sales price received by the Company was
$120,000 which resulted in a gain on sale of approximately $44,000 in the six
months ended June 30, 1997.
RESULTS OF OPERATIONS.
The Company follows the "successful efforts" method of accounting for its
oil and gas properties whereby costs of productive wells and productive leases
are capitalized and depleted on a unit-of-production basis over the life of the
remaining proved reserves. Depletion of capitalized costs is provided on a well
by well basis. Exploratory drilling costs, including the cost of stratigraphic
test wells, are initially capitalized, but charged to expense if and when the
well is determined to be unsuccessful.
The factors which most significantly affect the Company's results of
operations are (i) the sale prices of crude oil and natural gas, (ii) the level
of oil and gas sales, (iii) the level of lease operating expenses, (iv) the
level of exploratory activities, and (v) the level of interest rates on
borrowings. Total sales volumes and the level of borrowings are significantly
impacted by the degree of success the Company experiences in its efforts to
acquire oil and gas properties and its ability to maintain or increase
production from existing oil and gas properties through development and
enhancement activities. The following table reflects the average prices received
and the amounts produced by the Company for the periods presented.
Three Months Ended Six Months Ended
June 30 June 30
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1998 1997 1998 1997
------- ------- -------- --------
Average price:
Oil (per Bbl) $ 13.92 $ 19.16 $ 15.00 $ 20.70
Gas (per Mcf) $ 1.60 $ 1.47 $ 1.76 $ 1.82
Production:
Oil (Bbl) 9,236 11,572 19,589 24,026
Gas (Mcf) 50,645 75,105 110,685 141,429
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THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997.
The net loss of the Company increased by $167,769 from a loss of $112,370
experienced for the second quarter ended June 30, 1997 to a loss of $280,139 for
the second quarter ended June 30, 1998. The increased loss experienced is due
primarily to a decline in the Company's oil production and gas production and
the average prices received for oil production coupled with an increase of
$15,874 in salaries and wage expenses and an increase of $50,127 in general and
administrative expenses.
Oil and gas sales were $168,886 for the second quarter of 1998 as compared
to $331,989 for the second quarter of 1997. This represents a decrease of
$163,103 which is due primarily to lower prices, on a lesser amount of
production, received by the Company for its oil and gas production during the
second quarter ended June 30, 1998. Oil production for the second quarter of
1998 experienced a decline of 20% as compared to the second quarter of 1997 and
the average price received by the Company for its oil production declined from
$19.16 during the second quarter of 1997 to $13.92 during the second quarter of
1998. The decrease in oil production was primarily a result of the inability of
the Company to continue its normal operations maintenance program due to cash
flow constraints, and the natural production decline expected by the Company on
its existing properties. In addition, one well which produced approximately 15
barrels of oil per day developed a hole in the casing and was shut down. This
well is scheduled to be repaired during the third quarter of 1998. Gas
production for the second quarter of 1998 experienced a 33% decrease when
compared to the second quarter of 1997. However, the production decrease was
partially than offset by an increase in the average gas price received which was
$1.60 during the second quarter of 1998 as compared to $1.47 for the second
quarter of 1997. The decline in gas production was primarily a result of the
aforementioned cash flow constraints as well as the natural production decline
experienced on all wells.
Operating income declined by $13,107 during the three months ended June 30,
1998 to $24,576 as compared to $37,683 experienced during the three months ended
June 30, 1997. The decrease is primarily attributable to the Company reaching a
settlement with one of its creditors on an invoice that had previously been
recorded on the books of the Company for a higher amount during the three months
ended June 30, 1997. The amount of this debt reduction was approximately
$15,700.
Lease operating expenses, including production taxes, for the three months
ended June 30, 1998 decreased $71,259 to $92,837 from $164,096 experienced
during the three month period ended June 30, 1997. Production taxes declined by
$8,040 from $21,388 experienced during the quarter ended June 30, 1997 to
$13,348 experienced during the quarter ended June 30, 1998. This decline is
attributable to the lower taxable value of the Company's production during the
quarter ended June 30, 1998 as compared to the quarter ended June 30, 1997.
Other lease operating expense declined by $62,982 from $142,471 during the
second quarter ended June 30, 1997 to $79,489 experienced during the quarter
ended June 30, 1998. This decline is primarily attributable to reduced field
maintenance operations being conducted because of cash flow constraints during
the second quarter ended June 30, 1998.
11
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Depreciation, depletion and amortization declined to $64,829 for the three
month period ended June 30, 1998 as compared to $78,483 during the three month
period ended June 30, 1997. This decline is due primarily to the lower
production levels for oil and gas experienced during the quarter ended June 30,
1998 as compared to the quarter ended June 30, 1997.
Salaries and wages expense increased by $15,874 from $92,400 during the
three months ended June 30, 1997 to $108,274 during the three months ended June
30, 1998. The increase is attributable to the inclusion of expenses relating to
the exercise of stock options for 221,468 shares of Common Stock by the
President of the Company. The Company received cash proceeds in the approximate
amount of $11,073 and recorded an additional $15,503 in wage and salary expense
in order to reflect the total fair market value of the Common Stock issued.
General and administrative expenses increased by $50,127 from $94,784
during the three months ended June 30, 1997 to $144,911 during the three months
ended June 30, 1998. Insurance expense increased by approximately $9,700, loan
fees increased by approximately $33,700, and other professional services expense
increased by approximately $15,500. These increases were partially offset by
declines of approximately $4,200 in accounting and audit expense, and
approximately $5,400 in legal fees.
Other income (expense) increased from an expense of $52,279 experienced
during the quarter ended June 30, 1997 to an expense of $62,750 during the
quarter ended June 30, 1998. Major changes in items included in other income and
expense were as follows. Interest expense for the quarter ended June 30, 1998
amounted to $64,071 as compared to $52,374 for the quarter ended June 30, 1997.
The increase in interest expense was partially offset by the increase in gain on
sale of assets which amounted to $1,776.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997.
The net loss of the Company increased by $271,741 from a loss of $152,063
experienced for the six months ended June 30, 1997 to a loss of $423,804 for the
six months ended June 30, 1998. The increased loss experienced is due primarily
to the net effect of substantially lower oil and gas sales revenues, slightly
lower operating expenses, slightly higher interest expense and a reduced gain on
sale of assets.
Oil and gas sales were $447,607 for the six months ended June 30, 1998 as
compared to $748,431 for the first six months of 1997. This represents a
decrease of $300,824 which was primarily attributable lower production volumes
for both oil and gas and substantially lower oil prices. Oil production for the
first six months of 1998 declined by 18% while the average price received
decreased to $15.00 as compared to $20.70 for the first six months of 1997. The
decrease in oil production was primarily a result of the inability of the
Company to continue its normal operations maintenance program due to cash flow
constraints, and the natural production decline expected by the Company on its
existing properties. In addition, one well which produced approximately 15
barrels of oil per day developed a hole in the casing and was shut down during
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the second quarter of 1998. Gas production for the six months ended June 30,
1998 experienced a 22% decline when compared to the six months ended June 30,
1997 while the average price received for gas production declined from $1.82
received during the six months ended June 30, 1997 to $1.76 received during the
six months ended June 30, 1998. The decline in gas production was primarily a
result of the aforementioned cash flow constraints as well as the natural
production decline experienced on all wells.
Operating income declined by $16,716 during the six months ended June 30,
1998 to $43,313 as compared to $60,029 experienced during the six months ended
June 30, 1997. This decline is primarily attributable to the Company reaching a
settlement with one of its creditors on an invoice that had previously been
recorded on the books of the Company for a higher amount during the six months
ended June 30, 1997. The amount of this debt reduction was approximately
$15,700.
Lease operating expenses, including production taxes, for the six months
ended June 30, 1998 decreased $133,614 to $208,488 from $342,102 experienced
during the period ended June 30, 1997. Approximately $19,957 of this decrease is
due to reduced production taxes paid by the Company during the first six months
of 1997. The remainder of the decline is a result of the reduced field
maintenance operations being conducted by the Company because of cash flow
constraints experienced during the six months ended June 30, 1998. In addition,
lease operating expenses for the six months ended June 30, 1997 included
expenses incurred in completing minor workovers on several wells the Company
operates.
Depreciation, depletion and amortization declined to $129,659 for the
period ended June 30, 1998 as compared to $156,965 during the period ended June
30, 1997. This decline is due to the lower production levels for oil and gas
experienced during the six months June 30, 1998 as compared to the six months
ended June 30, 1997.
Salaries and wages expense increased by $12,577 from $186,368 during the
six months ended June 30, 1997 to $198,368 during the six months ended June 30,
1998. The increase is primarily attributable to the inclusion of expenses
relating to the exercise of stock options for 221,468 shares of Common Stock by
the President of the Company. The Company received cash proceeds in the
approximate amount of $11,073 and recorded an additional $15,503 in wage and
salary expense in order to reflect the total fair market value of the Common
Stock issued.
General and administrative expenses increased by $42,692 from $211,972
during the six months ended June 30, 1997 to $254,664 during the six months
ended June 30, 1998. Expenses which realized significant increases included
insurance expense with an increase of approximately $10,800, loan fees with an
increase of approximately $34,300, and professional services expense with an
increase of approximately $27,900. Expenses which experienced significant
declines include accounting and audit expense with a decrease of approximately
$6,100, legal fees with a decrease of approximately $16,400, and travel and
entertainment expenses with a decrease of approximately $7,200.
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Other income (expense) increased from an expense of $63,116 experienced
during the six months ended June 30, 1997 to an expense of $122,969 during the
six months ended June 30, 1998. Interest expense for the six months ended June
30, 1997 amounted to $103,850 as compared to $122,883 for the six months ended
June 30, 1998. This increase is attributable to the higher level of total debt
as of June 30, 1998 as compared to June 30, 1997. In addition, as described
above in the section entitled Disposition of Oil and Gas Properties, the Company
sold its oil and gas properties located in the state of Kansas effective
February 1, 1997. The sales price received by the Company was $120,000 which
resulted in a gain on sale of approximately $44,000 during the six months ended
June 30, 1997 as compared to a gain on sale of assets of approximately $3,300
during the six months ended June 30, 1998.
CAPITAL RESOURCES AND LIQUIDITY.
The Company's capital requirements relate to the acquisition, development
and operation of oil and gas producing properties. In general, since most of the
reserves the Company has acquired and intends to acquire are substantially
depleted by production, the success of its business strategy is dependent upon a
continuous acquisition, development and exploration program. The Company intends
to continue its practice of reserve replacement and growth through the
acquisition of producing oil and gas properties, although at this time it is
unable to predict the number and size of such acquisitions, if any, which will
be completed. The Company's ability to finance its oil and gas acquisitions is
determined by its cash flow from operations and available sources of debt and
equity financing. As of June 30, 1998, the Company had a working capital deficit
of $931,184 as compared to a working capital deficit of $631,662 as of December
31, 1997. During the six month period ended June 30, 1998 the Company
experienced a decrease in cash of $3,356 primarily as a result of an increase in
accounts payable, a decrease in accounts receivable and net proceeds from the
sale of long term debt which offset the net loss recorded for the period.
Effective March 21, 1997, pursuant to a Written Consent to Action by a
Majority (53.6%) of the Shareholders of the Company in lieu of a meeting and the
unanimous written Consent to Action by the Directors of the Company in lieu of a
meeting, the Company amended and restated both its Certificate of Incorporation
and its Bylaws. Prior to its amendment and restatement, the Company's
Certificate of Incorporation granted preemptive rights to shareholders with
respect to the issuance of Common Stock by the Company. Subsequent to this
action, the Company informed all shareholders of their right to exercise their
preemptive rights by informing the Company that they wished to do so by April
30, 1997. Based upon the responses received, the Company has issued 25,845
shares of Common Stock and has received $11,888.91 in proceeds for these shares.
In April, 1997, the Company completed an offering of 15,000 shares of its
Common Stock at $10 per share (75,000 shares at $2 per share after giving effect
to the stock split discussed in note 2 to the unaudited consolidated financial
statements) which was issued pursuant to Regulation D under the Securities Act
of 1933. Purchases under this offering were limited to 100 shares (500 shares
after giving effect to the stock split) per individual.
14
<PAGE>
On April 7, 1997, the Company filed a Form 10-SB with the Securities and
Exchange Commission. The purpose of this filing was to register all issued and
outstanding shares of the Company's Common Stock and develop a public market for
such Common Stock. The Company was notified by the Securities and Exchange
Commission that this filing was declared effective on June 26, 1997.
On September 1, 1997, the Company issued 33,000 shares of its Common Stock
to an individual as additional consideration for executing a promissory note
with the Company in the amount of $300,000. The note bears interest at 10 % per
annum and matures on April 30, 1998. The note is secured by a second mortgage on
the Company's oil and gas properties located in Coal County, Oklahoma. The
Company currently anticipates that the maturity of this note will be extended
until June 30, 1998.
On May 15, 1998, the Company issued 33,000 shares of its Common Stock to an
individual as additional consideration for executing a promissory note with the
Company in the amount of $300,000. The note bears interest at 10 % per annum and
matures on July 3, 1998. The note is secured by a mortgage on the Company's oil
and gas properties located in Borden County, Texas.
On June 23, 1998, the Company issued 221,468 shares of its Common Stock to
the President of the Company pursuant to an exercise of options previously
granted to him. The Company received cash proceeds in the approximate amount of
$11,073 and recorded an additional $15,503 in wage and salary expense in order
to reflect the total fair market value of the Common Stock issued.
SUBSEQUENT EVENT.
On July 1, 1998, the Company entered into a credit facility agreement with
an investment banking limited liability partnership. The terms of the $7,420,000
credit facility include a maturity of 4 years from the date of execution and an
interest rate tied to the prime rate of Citibank, N.A., New York. The credit
facility is secured by a first mortgage on all existing oil and gas properties
of the Company. The credit facility consists of a refinancing loan in the amount
of $2,320,000 and a development loan broken into two separate tranches. The
refinancing loan proceeds are to be used to extinguish the existing debt on the
Company's oil and gas properties, to pay the expenses associated with the
transaction and to reduce the accounts payable of the Company. Tranche A of the
development loan, in the amount of $1,350,000 is to be used for specific
development projects on the Company's existing oil and gas properties. Tranche B
of the development loan, in the amount of $3,750,000, is to be used to further
develop the Company's existing oil and gas properties. However, this amount will
not be funded unless certain performance goals have been attained including
certain oil and gas production and reserve levels. All borrowing activity under
the refinancing loan must take place within sixty days of closing. All borrowing
activity under tranche A and tranche B of the development loan must be completed
by December 31, 1998 and June 30, 2000, respectively. Under the terms of the
credit facility, all proceeds from the sale of oil
15
<PAGE>
and gas produced from the properties is to be used to first pay all oil and gas
operating expenses, then to fund a general and administrative allowance, and
then to be applied to interest and principal. In addition, the Company is
required to make minimum quarterly principal reductions until July, 2000 at
which time a total minimum principal reduction of $725,000 will have been made.
As additional consideration, the Company granted a net profits overriding
royalty on all of its production under which payments commence upon maturity or
prepayment of all interest and principal. In addition, the Company issued
200,000 warrants exercisable at $2.00 per share until June 30, 2003. On July 3,
1998, the Company borrowed all proceeds available under the refinancing loan and
subsequently disbursed the funds accordingly.
16
<PAGE>
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities.
See Item 4 below.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Effective March 21, 1997, pursuant to a Written Consent to Action
by a Majority (53.6%) of the Shareholders of the Company in lieu of a meeting
and the unanimous written Consent to Action by the Directors of the Company in
lieu of a meeting, the Company amended and restated both its Certificate of
Incorporation and its Bylaws. Prior to its amendment and restatement, the
Company's Certificate of Incorporation granted preemptive rights to shareholders
with respect to the issuance of Common Stock by the Company.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
On May 21, 1998 the Company filed a report on Form 8-KSB
presenting the terms of a commitment letter it had signed with Cambrian Capital
Corporation of Houston, Texas.
17
<PAGE>
Signatures
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAN WESTERN ENERGY CORPORATION
(Registrant)
Date: August 11, 1998 /s/ SID L. ANDERSON
------------------------------
Sid L. Anderson
President and Director
(Principal Executive Officer)
Date: August 11, 1998 /s/ CLAYTON E. WOODRUM
----------------------
Clayton E. Woodrum
Executive Vice President and Director
(Principal Financial Officer)
Date: August 11, 1998 /s/ VINCENT R. KEMENDO
------------------------
Vincent R. Kemendo
Vice President - Finance
(Principal Accounting Officer)
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM FORM 10QSB FOR THE
PERIOD ENDED JUNE 30,1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 123,784
<SECURITIES> 0
<RECEIVABLES> 135,863
<ALLOWANCES> 11,080
<INVENTORY> 0
<CURRENT-ASSETS> 303,151
<PP&E> 3,336,417
<DEPRECIATION> 1,102,915
<TOTAL-ASSETS> 2,630,949
<CURRENT-LIABILITIES> 1,234,335
<BONDS> 1,621,286
0
0
<COMMON> 47,031
<OTHER-SE> (271,703)
<TOTAL-LIABILITY-AND-EQUITY> 2,630,949
<SALES> 168,886
<TOTAL-REVENUES> 193,462
<CGS> 92,837
<TOTAL-COSTS> 410,851
<OTHER-EXPENSES> 1,320
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64,071
<INCOME-PRETAX> (280,139)
<INCOME-TAX> 0
<INCOME-CONTINUING> (280,139)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (280,139)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> 0
</TABLE>
