<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 March 31, 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 May 10, 1999, 3,621,873 shares of the Registrants Common Stock, $0.01 par
value, were outstanding.
<PAGE>
TABLE OF CONTENTS
Part I. Financial Information.
- -------
Item 1.
-------
Consolidated Balance Sheets (Unaudited) as of September 30, 1998
and as of December 31, 1997.
Consolidated Statements of Operations (Unaudited) for the three
and nine months ended September 30, 1998 and September 30, 1997.
Consolidated Statement of Changes in Stockholders' Equity
(Unaudited) for the nine months ended September 30, 1998.
Consolidated Statements of Cash Flows (Unaudited) for the nine
months ended September 30, 1998 and September 30, 1997.
Notes to Unaudited Consolidated Financial Statements for the nine
months ended September 30, 1998 and September 30, 1997.
Item 2.
-------
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Part II. Other Information.
- --------
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
PAN WESTERN ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
Unaudited Audited
------------------- --------------------
<S> <C> <C>
ASSETS
- ------
Current Assets:
Cash 13,392 5,863
Restricted cash 116,518 262,080
Receivables:
Trade, net of allowance of $11,080 95,424 183,680
Due from stockholder 27,169 24,261
Due from affiliated partnerships 0 0
Prepaid expenses 24,821 20,463
------------------- --------------------
Total current assets 277,323 496,347
------------------- --------------------
Property and Equipment:
Oil and gas properties (successful efforts method) 7,829,361 7,413,860
Other property and equipment 383,016 380,736
------------------- --------------------
8,212,377 7,794,596
Less accumulated depreciation and depletion 2,076,321 1,957,391
------------------- --------------------
Net property and equipment 6,136,056 5,837,205
------------------- --------------------
Other assets, net of accumulated amortization 160,795 170,206
------------------- --------------------
Total Assets 6,574,174 6,503,758
=================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable 590,178 767,045
Undistributed oil and gas revenues 91,839 148,517
Due to affiliated partnerships 7,540 7,540
Accrued liabilities 158,034 138,793
Current portion of long term debt 1,350,782 195,428
------------------- --------------------
Total current liabilities 2,198,373 1,257,323
Net profits overriding royalty 364,493 161,872
Long-term debt 6,518,397 7,114,238
------------------- --------------------
Total liabilities 9,081,263 8,533,433
------------------- --------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock ($.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 (4,334,511) (3,857,096)
Treasury stock (1,081,250 shares) (218,982) (218,982)
------------------- --------------------
Total stockholders' equity (2,507,090) (2,029,675)
------------------- --------------------
Total Liabilities and Stockholders' Equity 6,574,174 6,503,758
=================== ====================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
PAN WESTERN ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1999 March 31, 1998
--------------------- --------------------
<S> <C> <C>
REVENUE:
Oil and gas sales 214,456 278,722
Operating income 16,970 18,737
--------------------- --------------------
231,427 297,459
--------------------- --------------------
OPERATING EXPENSES:
Lease operating 153,986 115,651
Salaries and wages 104,450 90,671
Depreciation, depletion and amortization 119,637 64,829
General and administrative 142,453 109,751
--------------------- --------------------
520,525 380,902
--------------------- --------------------
OPERATING INCOME (LOSS) (289,099) (83,444)
--------------------- --------------------
OTHER INCOME (EXPENSE):
Loss from rental operations, net (4,023) (3,745)
(Loss) gain on sale of assets, net 0 845
Interest income 1,475 1,494
Interest expense (185,769) (58,813)
--------------------- --------------------
(188,316) (60,219)
--------------------- --------------------
INCOME (LOSS) BEFORE INCOME TAXES (477,414) (143,663)
Income taxes 0 0
--------------------- --------------------
NET INCOME (LOSS) (477,414) (143,663)
===================== ====================
NET INCOME (LOSS) PER SHARE (0.13) (0.04)
===================== ====================
Weighted average common shares 3,621,873 3,367,405
===================== ====================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
PAN WESTERN ENERGY CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 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 (3,857,097) (218,982) (2,029,675)
Net Income (loss) (477,414) (477,414)
-----------------------------------------------------------------------------------------------
Balances, March 31, 1999 47,032 1,999,371 (4,334,511) (218,982) (2,507,090)
===============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
PAN WESTERN ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1999 1998
--------------------- --------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) (477,414) (143,663)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation, depletion and amortization 119,637 64,829
Amortization of debt discount 22,041 0
(Gain) loss on sale of assets, net 0 (845)
(Increase) decrease in receivables 85,348 20,538
(Increase) decrease in prepaid expenses (4,358) (6,267)
(Increase) decrease in other assets 9,411 3,081
Increase (decrease) in accounts payable (176,867) 85,884
Increase (decrease) in accrued liabilities 19,241 5,000
Increase (decrease) in undistributed oil and gas revenues (56,676) 24,137
--------------------- --------------------
Net cash provided by (used in) operating activities (459,637) 52,694
--------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (415,501) 0
Purchase of certificate of deposit 0 0
Proceeds from the disposal of oil and gas properties 0 1,056
--------------------- --------------------
Net cash used in investing activities (415,501) 1,056
--------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 844,252 0
Repayment of long-term debt (107,147) (251,991)
Decrease (increase) in restricted cash 145,562 234,577
--------------------- --------------------
Net cash provided by financing activities 882,667 (17,414)
--------------------- --------------------
NET INCREASE (DECREASE) IN CASH 7,529 36,336
CASH, BEGINNING OF PERIOD 5,863 14,686
--------------------- --------------------
CASH, END OF PERIOD 13,392 51,022
===================== ====================
SUPLEMENTAL CASH FLOW INFORMATION:
Interest paid 162,287 42,033
===================== ====================
Income taxes paid 0 0
===================== ====================
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
PAN WESTERN ENERGY CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 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 3,367,405 for the three months ended March 31,
1999 and 1998, respectively.
Outstanding stock options and warrants have not been included in the
calculation for the periods ended March 31, 1999 and March 31, 1998 since
their effect on net loss per share is antidilutive.
7
<PAGE>
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 approximately 1,000 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.
Three Months Ended March 31
---------------------------
1999 1998
----- ------
Average price:
Oil (per Bbl) $10.29 $15.95
Gas (per Mcf) $ 1.47 $ 1.89
Production:
Oil (Bbl) 12,615 10,353
Gas (Mcf) 95,414 60,040
8
<PAGE>
Three months ended March 31, 1999 compared to three months ended March 31, 1998.
The net loss of the Company increased by $333,781 from a loss of $143,663
experienced for the first quarter ended March 31, 1998 to a loss of $477,414 for
the first quarter ended March 31, 1999. The increased loss experienced is due
primarily to the net effect of an increase in the Company's oil and gas
production with a substantial reduction in the average prices received for this
production coupled with increases of $38,335 in lease operating expenses,
$54,808 in depreciation, depletion and amortization expense, $32,702 in general
and administrative expenses and $13,779 in salaries and wages.
Oil and gas sales were $214,456 for the first quarter ended March 31, 1999
as compared to $278,722 for the first quarter ended March 31, 1998. This
represents a decrease of $64,266 which is due primarily to lower prices, on a
greater amount of production, received by the Company for its oil and gas
production during the first quarter ended March 31, 1999. Oil production for the
first quarter of 1999 experienced an increase of 21.8% as compared to the first
quarter of 1998 and the average price received by the Company for its oil
production declined from $15.95 during the first quarter of 1998 to $10.29
received during the first 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 first
quarter of 1999 experienced a 58.9% increase when compared to the first 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 first quarter
ended March 31, 1999 would have experienced a decline of 18.2% as compared to
the first quarter ended March 31, 1998. The average price for gas received by
the Company declined to $1.47 during the first quarter of 1999 as compared to
$1.89 received during the first quarter of 1998.
Operating income declined by $1,767 during the three months ended March 31,
1999 to $16,970 as compared to $18,737 experienced during the three months ended
March 31, 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 March 31, 1999 increased $38,335 to $153,986 from $115,651 experienced
during the period ended March 31, 1998. Production taxes declined by $1,549 from
$18,406 experienced during the quarter ended March 31, 1998 to $16,857
experienced during the quarter ended March 31, 1999. This decline is
attributable to the lower taxable value of the Company's production during the
first quarter ended March 31, 1999 as compared to the quarter ended March 31,
1998. Other lease operating expense increased by $39,885 from $97,244 during the
first quarter ended March 31, 1998 to $137,129 experienced during the first
quarter ended March 31, 1999. This increase is primarily attributable to
increased field maintenance operations being conducted during the first quarter
ended March 31, 1999 as compared to the first quarter ended March 31, 1998. The
increased field maintenance operations were financed with proceeds from the
credit facility entered into by the Company in August, 1998.
9
<PAGE>
Depreciation, depletion and amortization increased to $119,637 for the
three month period ended March 31, 1999 as compared to $64,829 during the three
month period ended March 31, 1998. This increase is due primarily to the higher
production levels for oil and gas experienced during the quarter ended March 31,
1999 as compared to the quarter ended March 31, 1998 coupled with an increased
oil and gas property asset amount.
General and administrative expenses increased by $32,702 from $109,751
during the quarter ended March 31, 1998 to $142,453 during the quarter ended
March 31, 1999. The increase in these expenses was due primarily to an increase
in telephone and communication expense of $6,616, an increase in office supplies
expense of $1,084, an increase in travel and entertainment expenses of $5,729
and an increase of $31,888 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 $1,397 in printing and copying expense, a
decrease of $1,175 in other professional services expenses and a $10,442
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.
Salaries and wages expense increased by $13,779 from $90,671 during the
first quarter ended March 31, 1998 to $104,450 during the quarter ended March
31, 1999. The increase is attributable to salary increases given to three
employees effective August, 1998.
Other income (expense) increased from an expense of $60,219 experienced
during the quarter ended March 31, 1998 to an expense of $188,316 during the
quarter ended March 31, 1999. Major changes in items included in other income
and expense were as follows. Interest expense for the quarter ended March 31,
1999 amounted to $185,769 as compared to $58,813 for the quarter ended March 31,
1998. (Loss) gain on sale of assets for the quarter ended March 31, 1998
amounted to a gain of $845 as compared to no loss or gain on sale of assets
during the first quarter ended March 31, 1999. The increased interest expense is
a result of a substantially higher level of debt incurred by the Company during
the quarter ended March 31, 1999 as compared to the quarter ended March 31,
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 March 31, 1999, the Company had a working capital
deficit of $1,921,050 as compared to a working capital deficit of $776,437 as of
December 31, 1998. During the three month period ended March 31, 1999 the
Company
10
<PAGE>
experienced an increase in cash of $7,529. The total debt of the Company as of
March 31, 1999 amounted to $7,869,179 as compared to $2,187,201 as of March 31,
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 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.
11
<PAGE>
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.
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.
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 commitments letter it had signed with Cambrian Capital
Corporation of Houston, Texas.
12
<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: June 7, 1999 /s/ SID L. ANDERSON
------------------------------
Sid L. Anderson
President and Director
(Principal Executive Officer)
Date: June 7, 1998 /s/ CLAYTON E. WOODRUM
------------------------------
Clayton E. Woodrum
Executive Vice President and Director
(Principal Financial Officer)
Date: June 7, 1998 /s/ VINCENT R. KEMENDO
------------------------------
Vincent R. Kemendo
Vice President - Finance
(Principal Accounting Officer)
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10QSB
FOR THE PERIOD ENDED MARCH 31, 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> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 129,910
<SECURITIES> 0
<RECEIVABLES> 106,504
<ALLOWANCES> 11,080
<INVENTORY> 0
<CURRENT-ASSETS> 277,323
<PP&E> 8,212,377
<DEPRECIATION> 2,076,321
<TOTAL-ASSETS> 6,574,174
<CURRENT-LIABILITIES> 2,198,373
<BONDS> 6,518,397
0
0
<COMMON> 47,032
<OTHER-SE> (2,554,122)
<TOTAL-LIABILITY-AND-EQUITY> 6,574,174
<SALES> 214,456
<TOTAL-REVENUES> 231,427
<CGS> 273,623
<TOTAL-COSTS> 520,525
<OTHER-EXPENSES> 2,548
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 185,769
<INCOME-PRETAX> (477,414)
<INCOME-TAX> 0
<INCOME-CONTINUING> (477,414)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (477,414)
<EPS-BASIC> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
