<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 SECURITIES
- ---
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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 ___
---
As of August 6, 1999, 3,621,873 shares of the Registrants Common Stock, $0.01
par value, were outstanding.
1
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TABLE OF CONTENTS
Part I. Financial Information.
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Item 1.
------
Consolidated Balance Sheets (Unaudited) as of June 30, 1999 and
as of December 31, 1998.
Consolidated Statements of Operations (Unaudited) for the three
and six months ended June 30, 1999 and June 30, 1998.
Consolidated Statement of Changes in Stockholders' Equity
(Unaudited) for the six months ended June 30, 1999.
Consolidated Statements of Cash Flows (Unaudited) for the six
months ended June 30, 1999 and June 30, 1998.
Notes to Unaudited Consolidated Financial Statements for the six
months ended June 30, 1999 and June 30, 1998.
Item 2.
------
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Part II. Other Information.
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ITEM 1. FINANCIAL STATEMENTS
PAN WESTERN ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
1999 December 31,
(Unaudited) 1998
------------------- -------------------
<S> <C> <C>
ASSETS
- ------
Current Assets:
Cash 1,257 5,863
Restricted cash 351,495 262,080
Receivables:
Trade, net of allowance of $11,080 96,913 183,680
Due from stockholder 28,272 24,261
Due from affiliated partnerships 0 0
Prepaid expenses 25,312 20,463
------------------ -------------------
Total current assets 503,250 496,347
------------------ -------------------
Property and Equipment:
Oil and gas properties (successful efforts method) 7,972,125 7,413,860
Other property and equipment 383,016 380,736
------------------ -------------------
8,355,141 7,794,596
Less accumulated depreciation and depletion 2,195,252 1,957,391
------------------ -------------------
Net property and equipment 6,159,889 5,837,205
------------------ ------------------
Other assets, net of accumulated amortization 151,384 170,206
------------------ ------------------
Total Assets 6,814,523 6,503,758
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable 748,655 767,045
Undistributed oil and gas revenues 96,262 148,517
Due to affiliated partnerships 18,050 7,540
Accrued liabilities 368,213 138,793
Current portion of long term debt 1,611,652 195,428
------------------ -------------------
Total current liabilities 2,842,832 1,257,323
Net profits overriding royalty 425,308 161,872
Long-term debt 6,464,909 7,114,238
------------------ -------------------
Total liabilities 9,733,048 8,533,433
------------------ -------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock ($.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 4,703,123 shares 47,032 47,032
Additional paid in capital 1,999,371 1,999,371
Accumulated deficit (4,745,946) (3,857,096)
Treasury stock (1,081,250 shares of common stock) (218,982) (218,982)
------------------ -------------------
Total stockholders' equity (2,918,525) (2,029,675)
------------------ -------------------
Total Liabilities and Stockholders' Equity 6,814,523 6,503,758
================== ===================
</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,
---------------------------- ---------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUE:
Oil and gas sales 325,069 168,886 539,526 447,607
Operating income 16,693 24,576 33,663 43,313
---------- ---------- ---------- ----------
341,762 193,462 573,189 490,921
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Lease operating 154,483 92,837 308,469 208,488
Salaries and wages 102,950 108,274 207,400 198,945
Depreciation, depletion and amortization 119,637 64,829 239,273 129,659
General and administrative 160,762 144,911 303,215 254,664
---------- ---------- ---------- ----------
537,832 410,851 1,058,357 791,756
---------- ---------- ---------- ----------
OPERATING INCOME (LOSS) (196,070) (217,389) (485,168) (300,835)
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Loss from rental operations, net (7,162) (2,643) (11,184) (6,388)
(Loss) gain on sale of assets, net 0 2,450 0 3,295
Interest income 0 1,513 1,475 3,007
Interest expense (208,204) (64,071) (393,973) (122,883)
---------- ---------- ---------- ----------
(215,366) (62,750) (403,682) (122,969)
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (411,436) (280,139) (888,850) (423,804)
Income taxes 0 0 0 0
---------- ---------- ---------- ----------
NET INCOME (LOSS) (411,436) (280,139) (888,850) (423,804)
========== ========== ========== ==========
NET INCOME (LOSS) PER SHARE (0.11) (0.08) (0.25) (0.13)
========== ========== ========== ==========
Weighted average common shares 3,621,873 3,386,979 3,621,873 3,377,246
========== ========== ========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
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PAN WESTERN ENERGY CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(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, 1998 47,032 1,999,371 (3,857,096) (218,982) (2,029,675)
Issuance of stock 0
Net Income (loss) (888,850) (888,850)
----------------------------------------------------------------------------------------------
Balances, June 30, 1999 47,032 1,999,371 (4,745,946) (218,982) (2,918,525)
==============================================================================================
</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,
1999 1998
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) (888,850) (423,804)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation, depletion and amortization 266,744 167,181
Amortization of debt discount 41,053 0
Other 0 20,928
(Gain) loss on sale of assets, net 0 (3,295)
(Increase) decrease in receivables 82,755 58,999
(Increase) decrease in prepaid expenses (4,849) (34,264)
(Increase) decrease in other assets (17,410) (29,384)
Increase (decrease) in accounts payable (7,880) 103,928
Increase (decrease) in accrued liabilities 229,420 12,721
Increase (decrease) in undistributed oil and gas revenues (52,255) (22,833)
------------ -------------
Net cash provided by (used in) operating activities (351,271) (149,823)
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (560,546) 2,465
Purchase of certificate of deposit (1,475) 2,834
Proceeds from the disposal of oil and gas properties 0 3,656
------------ -------------
Net cash used in investing activities (562,021) 8,955
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 1,097,646 300,000
Repayment of long-term debt (108,368) (402,420)
Decrease (increase) in restricted cash (89,415) 228,859
Proceeds from sale of common stock 0 11,073
------------ -------------
Net cash provided by financing activities 899,863 137,512
------------ -------------
NET INCREASE (DECREASE) IN CASH (13,429) (3,356)
CASH, BEGINNING OF PERIOD 14,686 14,686
------------ -------------
CASH, END OF PERIOD 1,257 11,330
============ =============
SUPLEMENTAL CASH FLOW INFORMATION:
Interest paid 179,553 100,162
============ =============
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, 1999 AND 1998
(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 audited financial statements and notes thereto for the years
ended December 31, 1998 and 1997. The financial data for the interim
periods presented may not necessarily reflect the results to be anticipated
for the complete year.
Although operating results have negatively impacted the Company's
liquidity, capital resources and ability to make scheduled debt payments,
the Company anticipates the cash flows will be sufficient to fund its
operating and debt service requirements at their current levels for the
next year. The Company's business strategy is to continue to concentrate on
expanding its asset base and cash flows through acquisition and
exploitation of oil and gas reserves, to the extent that it has the capital
resources to do so. The Company considers sources of such financing to
include bank lines of credit, public and private sales of debt or equity
securities, joint oil and gas development arrangements, and internally-
generated cash flows. Management currently believes that sufficient
external or internal funds will be available to fund the Company's
operations.
(2) Loss per common share. Net loss per common share for the periods presented
has been computed based upon the weighted average number of shares
outstanding of 3,621,873 and 3,377,246 for the six months ended June 30,
1999 and 1998, respectively and 3,621,873 and 3,386,979 for the three
months ended June 30, 1999 and 1998, respectively.
Outstanding stock options and warrants have not been included in the
calculation for the three and six month periods ended June 30, 1999 and
June 30, 1998 since their effect on net loss per share is antidilutive.
7
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Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Purchase of Oil and Gas Properties.
In August, 1998, the Company purchased 11 wells in Sherman County, Texas
from Exxon Corporation. The average daily gross production from these 11 wells
is currently approximately 1,500 mcf per day.
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.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------- -------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average price:
Oil (per Bbl) $15.04 $13.92 $12.48 $15.00
Gas (per Mcf) $ 1.37 $ 1.60 $ 1.41 $ 1.76
Production:
Oil (Bbl) 10,815 9,236 23,430 19,589
Gas (Mcf) 118,865 50,645 214,279 110,685
</TABLE>
8
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Three months ended June 30, 1999 compared to three months ended June 30, 1998.
The net loss of the Company increased by $131,297 from a loss of $280,139
experienced for the second quarter ended June 30, 1998 to a loss of $411,436 for
the second quarter ended June 30, 1999. The increased loss experienced is due
primarily to increases in the Company's oil production and gas production and
the average price received for oil production coupled with an increase of
$61,646 in lease operating expense, an increase in depreciation, depletion and
amortization expense of $54,808 and an increase of $15,851 in general and
administrative expenses.
Oil and gas sales were $325,069 for the second quarter of 1999 as compared
to $168,886 for the second quarter of 1998. This represents a increase of
$156,183 which is due primarily to increased oil and gas production experienced
during the second quarter ended June 30, 1999 as compared to the second quarter
ended June 30, 1998. Oil production for the second quarter of 1999 experienced a
17% increase as compared to the second quarter of 1998 and the average price
received by the Company for its oil production increased from $13.92 during the
second quarter of 1998 to $15.04 during the second quarter of 1999. The increase
in oil production was primarily a result of work on the Company's Borden County,
Texas properties which was completed in the fourth quarter of 1998. Gas
production for the second quarter of 1999 experienced a 134% increase when
compared to the second quarter of 1998. This increase is a result of gas
produced on the Company's Sherman County, Texas properties which were purchased
by the Company in August, 1998. If the Sherman County production was excluded,
gas production for the second quarter ended June 30, 1999 would have experienced
an increase of only 34% as compared to the second quarter ended June 30, 1998.
The average price for gas received by the Company declined to $1.37 during the
second quarter of 1999 as compared to $1.60 received during the second quarter
of 1998.
Operating income declined by $7,883 during the three months ended June 30,
1999 to $16,693 as compared to $24,576 experienced during the three months ended
June 30, 1998. This decrease is primarily attributable to overhead expenses
being charged to a reduced number of wells which are operated by the Company.
Lease operating expenses, including production taxes, for the three months
ended June 30, 1999 increased $61,646 to $154,483 from $92,837 experienced
during the period ended June 30, 1998. Production taxes increased by $2,268 from
$13,348 experienced during the quarter ended June 30, 1998 to $15,616
experienced during the quarter ended June 30, 1999. This increase is
attributable to the higher taxable value of the Company's production during the
second quarter ended June 30, 1999 as compared to the quarter ended June 30,
1998. Other lease operating expense increased by $59,377 from $79,489 during the
second quarter ended June 30, 1998 to $138,867 experienced during the second
quarter ended June 30, 1999. This increase is primarily attributable to
increased field maintenance operations being conducted during the second quarter
ended June 30, 1999 as compared to the second quarter ended June 30, 1998. The
increased field maintenance operations were financed with proceeds from the
credit facility entered into by the Company in August, 1998.
9
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Depreciation, depletion and amortization increased to $119,637 for the
three month period ended June 30, 1999 as compared to $64,829 during the three
month period ended June 30, 1998. This increase is due primarily to the higher
production levels for oil and gas experienced during the quarter ended June 30,
1999 as compared to the quarter ended June 30, 1998 coupled with an increased
oil and gas property asset amount.
Salaries and wages expense decreased by $5,324 from $108,274 during the
first quarter ended June 30, 1998 to $102,950 during the quarter ended June 30,
1999. The decrease is attributable to the loss of one part-time employee.
General and administrative expenses increased by $15,851 from $144,911
during the quarter ended June 30, 1998 to $160,762 during the quarter ended June
30, 1999. The increase in these expenses was due primarily to an increase in
telephone and communication expense of $6,054, an increase in professional
services expense of $32,237, an increase in travel and entertainment expenses of
$8,273 and an increase of $17,870 in amortization of costs incurred as a result
of the credit facility entered into by the Company in August, 1998. These
increases are partially offset by a decrease of $4,841 in insurance expense, a
$24,983 decrease in loan fees, a decrease of $7,751 in legal fees and a $9,637
decrease in the guarantee fee paid to the president of the Company as a result
of his executing personal guarantees on some of the Company's outstanding debt.
Most of the debt he had guaranteed was paid with some of the proceeds received
on the credit agreement executed by the Company in August, 1998.
Other income (expense) increased from an expense of $62,750 experienced
during the quarter ended June 30, 1998 to an expense of $215,366 during the
quarter ended June 30, 1999. Major changes in items included in other income and
expense were as follows. Interest expense for the quarter ended June 30, 1999
amounted to $208,204 as compared to $64,071 for the quarter ended June 30, 1998.
(Loss) gain on sale of assets for the quarter ended June 30, 1998 amounted to a
gain of $2,450 as compared to no loss or gain on sale of assets during the
second quarter ended June 30, 1999. The increased interest expense is a result
of a substantially higher level of debt incurred by the Company during the
quarter ended June 30, 1999 as compared to the quarter ended June 30, 1998.
Six months ended June 30, 1999 compared to six months ended June 30, 1998.
The net loss of the Company increased by $465,046 from a loss of $423,804
experienced for the six months ended June 30, 1998 to a loss of $888,850 for the
six months ended June 30, 1999. The increased loss experienced is due primarily
to the net effect of slightly increased oil and gas sales revenues, increased
operating expenses and increased interest expense.
Oil and gas sales were $539,526 for the six months ended June 30, 1999
as compared to $447,607 for the first six months of 1998. This represents an
increase of $91,919 which was primarily attributable increased production
volumes for both oil and gas. Oil production for the first six months of 1999
increased by 19% while the average price received decreased to $12.48 as
compared to $15.00 for the first six months of 1998. The increase in oil
production was primarily a result of work on the Company's Borden County, Texas
properties which was
10
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completed in the fourth quarter of 1998. Gas production for the six months ended
June 30, 1999 experienced a 94% increase when compared to the six months ended
June 30, 1998 while the average price received for gas production declined from
$1.76 received during the six months ended June 30, 1998 to $1.41 received
during the six months ended June 30, 1999. This increase is a result of gas
produced on the Company's Sherman County, Texas properties which were purchased
by the Company in August, 1998. If the Sherman County production was excluded,
gas production for the six months ended June 30, 1999 would have experienced a
decline of 10% as compared to the six months ended June 30, 1998.
Operating income declined by $9,650 during the six months ended June 30,
1999 to $33,663 as compared to $43,313 experienced during the six months ended
June 30, 1998. This decrease is primarily attributable to overhead expenses
being charged to a reduced number of wells which are operated by the Company.
Lease operating expenses, including production taxes, for the six months
ended June 30, 1999 increased $99,981 to $308,469 from $208,488 experienced
during the period ended June 30, 1998. Production taxes increased by $717 from
$31,755 experienced during the six months ended June 30, 1998 to $32,472
experienced during the six months ended June 30, 1999. This increase is
attributable to the higher taxable value of the Company's production during the
six months ended June 30, 1999 as compared to the six month period ended June
30, 1998. Other lease operating expense increased by $99,263 from $176,733
during the six months ended June 30, 1998 to $275,996 experienced during the six
months ended June 30, 1999. This increase is primarily attributable to increased
field maintenance operations being conducted during the six months ended June
30, 1999 as compared to the six month period ended June 30, 1998. The increased
field maintenance operations were financed with proceeds from the credit
facility entered into by the Company in August, 1998.
Depreciation, depletion and amortization increased to $239,273 for the
six month period ended June 30, 1999 as compared to $129,659 during the six
month period ended June 30, 1998. This increase is due primarily to the higher
production levels for oil and gas experienced during the six months ended June
30, 1999 as compared to the six month period ended June 30, 1998 coupled with an
increased oil and gas property asset amount.
Salaries and wages expense increased by $8,455 from $198,945 during the six
months ended June 30, 1998 to $207,400 during the six months ended June 30,
1999. The increase is attributable to salary increases which were given to three
employees effective August, 1998.
General and administrative expenses increased by $48,551 from $254,664
during the six months ended June 30, 1998 to $303,215 during the six months
ended June 30, 1999. The increase in these expenses was due primarily to an
increase in telephone and communication expense of $12,670, an increase in
professional services expense of $30,828, an increase in travel and
entertainment expenses of $12,478 and an increase of $41,053 in amortization of
costs incurred as a result of the credit facility entered into by the Company in
August, 1998. These increases are partially offset by a decrease of $2,350 in
insurance expense, a $16,965 decrease in loan fees, a decrease of $8,028 in
legal fees and a $20,080 decrease in the guarantee fee paid to
11
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the president of the Company as a result of his executing personal guarantees on
some of the Company's outstanding debt. Most of the debt he had guaranteed was
paid with some of the proceeds received on the credit agreement executed by the
Company in August, 1998.
Other income (expense) increased from an expense of $122,969 experienced
during the six months ended June 30, 1998 to an expense of $403,682 during the
six months ended June 30, 1999. Interest expense for the six months ended June
30, 1998 amounted to $122,883 as compared to $393,973 for the six months ended
June 30, 1999. This increase is attributable to the higher level of total debt
as of June 30, 1999 as compared to June 30, 1998. In addition, during the six
months ended June 30, 1999, the Company reported a loss from rental operations
of $11,184 as compared to a loss of $6,388 realized for the six months ended
June 30, 1998. During the six months ended June 30, 1998, the Company realized a
gain on sale of assets of $3,295. The Company had no asset sales in the six
months ended June 30, 1999.
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, 1999, the Company had a working capital deficit
of $2,339,582 as compared to a working capital deficit of $1,921,050 as of
December 31, 1998. During the six month period ended June 30, 1999 the Company
experienced a decrease in cash of $13,429. The total debt of the Company as of
June 30, 1999 amounted to $8,076,561 as compared to $2,336,772 as of June 30,
1998 and $7,309,666 as of December 31, 1998.
Although operating results have negatively impacted the Company's
liquidity, capital resources and ability to make scheduled debt payments, the
Company anticipates the cash flows will be sufficient to fund its operating and
debt service requirements at their current levels for the next year. The
Company's business strategy is to continue to concentrate on expanding its asset
base and cash flows through acquisition and exploitation of oil and gas
reserves, to the extent that it has the capital resources to do so. The Company
considers sources of such financing to include bank lines of credit, public and
private sales of debt or equity securities, joint oil and gas development
arrangements, and internally-generated cash flows. Management currently believes
that sufficient external or internal funds will be available to fund the
Company's operations.
Year 2000 Issues.
The Company has conducted a review of its systems, including both
information technology (e.g. computer databases) and non-informational
technology systems (e.g. building
12
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utilities) that use date data to identify the systems that could be affected by
the "Year 2000" issue and is currently developing a plan to resolve the issue.
The Year 2000 issue is a result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
affected programs that have time sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a major
system failure or miscalculations.
Testing of the Company's systems began in the third quarter of 1998 and
although the non-informational technology systems were found to be Year 2000
compliant, the Company's accounting software was found to be non-compliant. The
Company has contacted the software vendor regarding their attempts to modify the
software to make it Year 2000 compliant and the Company has been assured by the
software vendor that they will complete the necessary modifications during the
year 1999. As an alternative, the Company is currently reviewing other oil and
gas accounting software packages which are already Year 2000 compliant. There
are several oil and gas accounting software vendors with products which meet the
Company's needs and in the event the Company must purchase new accounting
software the cost of any conversion is currently not expected to exceed $50,000.
The Company is also exposed to the risk that one or more of its vendors or
service providers could experience Year 2000 problems that impact the ability of
such vendor or service provider to provide goods and services. Though this is
not considered a significant risk with respect to suppliers of oilfield goods,
due to the availability of alternative suppliers, the disruption of certain
services, such as electrical service for pumping wells, could have a material
impact on the Company's operations. Further, the Company has initiated
communications with its significant purchasers of its products and financial
institutions to assess their Year 2000 readiness. To date, these efforts have
not revealed any purchaser or banking services provider Year 2000 issues that
the Company believes would have a material adverse impact on the Company's
operations. However, if a vendor, purchaser or bank is found not to be Year 2000
compliant, the Company would be forced to contract with alternative entities. In
the event the Company is forced to do so, such change is not expected to have a
material impact on the Company's operations due to the number of available
suppliers of these services and purchasers for the Company's oil and gas
production.
The Company currently believes based on its knowledge and representations
of third parties that, with modifications to existing software and conversion to
new software, the Year 2000 issue will not pose significant operational problems
for the Company. However, if such modifications and conversions are not
completed in a timely fashion, the Year 2000 issue may have a material adverse
impact on the operations of the Company.
Part II. Other Information.
Item 1. Legal Proceedings.
Not applicable.
13
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Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
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.
14
<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 3, 1999 /s/ SID L. ANDERSON
-------------------------
Sid L. Anderson
President and Director
(Principal Executive Officer)
Date: August 3, 1999 /s/ CLAYTON E. WOODRUM
-------------------------
Clayton E. Woodrum
Executive Vice President and Director
(Principal Financial Officer)
Date: August 3, 1999 /s/ VINCENT R. KEMENDO
-------------------------
Vincent R. Kemendo
Vice President - Finance
(Principal Accounting Officer)
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10QSB
FOR THE PERIOD ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 352,752
<SECURITIES> 0
<RECEIVABLES> 107,993
<ALLOWANCES> 11,080
<INVENTORY> 0
<CURRENT-ASSETS> 503,250
<PP&E> 8,355,141
<DEPRECIATION> 2,195,252
<TOTAL-ASSETS> 6,814,523
<CURRENT-LIABILITIES> 2,842,832
<BONDS> 6,464,909
0
0
<COMMON> 47,032
<OTHER-SE> (2,965,557)
<TOTAL-LIABILITY-AND-EQUITY> 6,814,523
<SALES> 325,069
<TOTAL-REVENUES> 341,762
<CGS> 274,120
<TOTAL-COSTS> 537,832
<OTHER-EXPENSES> 7,162
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 208,204
<INCOME-PRETAX> (411,436)
<INCOME-TAX> 0
<INCOME-CONTINUING> (411,436)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (411,436)
<EPS-BASIC> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
