<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 September 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 November 8, 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.
- -------
Item 1.
-------
Consolidated Balance Sheets (Unaudited) as of September 30, 1999 and
as of December 31, 1998.
Consolidated Statements of Operations (Unaudited) for the three and
nine months ended September 30, 1999 and September 30, 1998.
Consolidated Statement of Changes in Stockholders' Equity
(Unaudited) for the nine months ended September 30, 1999.
Consolidated Statements of Cash Flows (Unaudited) for the nine
months ended September 30, 1999 and September 30, 1998.
Notes to Unaudited Consolidated Financial Statements for the nine
months ended September 30, 1999 and September 30, 1998.
Item 2.
-------
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Part II. Other Information.
- --------
2
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ITEM 1. FINANCIAL STATEMENTS
PAN WESTERN ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
1999 December 31,
(Unaudited) 1998
-------------- ------------
<S> <C> <C>
ASSETS
- ------
Current Assets:
Cash 47,227 5,863
Restricted cash 134,656 262,080
Receivables:
Trade, net of allowance of $11,080 105,731 183,680
Due from stockholder 28,272 24,261
Due from affiliated partnerships 0 0
Prepaid expenses 21,228 20,463
-------------- ------------
Total current assets 337,114 496,347
-------------- ------------
Property and Equipment:
Oil and gas properties (successful efforts method) 8,200,793 7,413,860
Other property and equipment 383,016 380,736
-------------- ------------
8,583,810 7,794,596
Less accumulated depreciation and depletion 2,314,182 1,957,391
-------------- ------------
Net property and equipment 6,269,627 5,837,205
-------------- ------------
Other assets, net of accumulated amortization 141,973 170,206
-------------- ------------
Total Assets 6,748,715 6,503,758
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable 846,715 767,045
Undistributed oil and gas revenues 90,471 148,517
Due to affiliated partnerships 18,050 7,540
Accrued liabilities 111,710 138,793
Current portion of long term debt 1,506,788 195,428
-------------- ------------
Total current liabilities 2,573,734 1,257,323
Net profits overriding royalty payable 500,193 161,872
Long-term debt 6,891,975 7,114,238
-------------- ------------
Total liabilities 9,965,902 8,533,433
-------------- ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock ($.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 (5,044,608) (3,857,096)
Treasury stock (1,081,250 shares of common stock) (218,982) (218,982)
-------------- ------------
Total stockholders' equity (3,217,187) (2,029,675)
-------------- ------------
Total Liabilities and Stockholders' Equity 6,748,715 6,503,758
============== ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
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PAN WESTERN ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
----------------------------------- -----------------------------------
1999 1998 1999 1998
--------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
REVENUE:
Oil and gas sales 424,056 237,659 963,582 685,266
Operating income 16,411 17,833 50,074 61,146
--------------- --------------- ---------------- ---------------
440,468 255,491 1,013,656 746,412
--------------- --------------- ---------------- ---------------
OPERATING EXPENSES:
Lease operating 152,798 198,814 461,267 407,303
Salaries and wages 94,127 82,071 301,527 281,016
Depreciation, depletion and amortization 119,637 107,325 358,910 236,983
General and administrative 149,288 147,071 452,503 401,735
----------------- --------------- ---------------- ---------------
515,850 535,281 1,574,207 1,327,036
----------------- --------------- ---------------- ---------------
OPERATING INCOME (LOSS) (75,382) (279,789) (560,551) (580,624)
----------------- --------------- ---------------- ---------------
OTHER INCOME (EXPENSE):
Loss from rental operations, net (4,019) (4,792) (15,204) (11,179)
(Loss) gain on sale of assets, net 0 640 0 3,935
Interest income 0 1,544 1,475 4,551
Interest expense (219,260) (127,489) (613,233) (250,371)
----------------- --------------- ---------------- ---------------
(223,280) (130,097) (626,961) (253,064)
----------------- --------------- ---------------- ---------------
INCOME (LOSS) BEFORE INCOME TAXES (298,662) (409,886) (1,187,512) (833,688)
Income taxes 0 0 0 0
----------------- --------------- ---------------- ---------------
NET INCOME (LOSS) (298,662) (409,886) (1,187,512) (833,688)
================= =============== ================ ===============
NET INCOME (LOSS) PER SHARE -
Basic And Diluted (0.08) (0.11) (0.33) (0.24)
================= =============== ================ ===============
Weighted Average Common Shares -
Basic And Diluted 3,621,873 3,621,873 3,621,873 3,465,331
================= =============== ================ ===============
</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 NINE MONTHS ENDED SEPTEMBER 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) (1,187,512) (1,187,512)
------------------------------------------------------------
Balances, September 30, 1999 47,032 1,999,371 (5,044,608) (218,982) (3,217,187)
============================================================
</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>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1999 1998
--------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) (1,187,512) (833,688)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation, depletion and amortization 412,569 236,983
Amortization of debt discount 72,887 0
(Gain) loss on sale of assets, net 0 (3,935)
(Increase) decrease in receivables 73,938 34,272
(Increase) decrease in prepaid expenses (765) (427)
(Increase) decrease in other assets 26,115 (19,006)
Increase (decrease) in accounts payable 90,180 344,719
Increase (decrease) in accrued liabilities (27,083) 49,501
Increase (decrease) in undistributed oil and gas revenues (58,046) (19,892)
--------------- --------------
Net cash provided by (used in) operating activities (597,718) (211,473)
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (789,214) (4,580,427)
Purchase of certificate of deposit (1,475) (4,370)
Proceeds from the disposal of oil and gas properties 0 7,155
--------------- --------------
Net cash used in investing activities (790,689) (4,577,642)
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 1,529,943 6,585,084
Repayment of long-term debt (227,596) (1,824,115)
Decrease (increase) in restricted cash 127,424 230,207
Proceeds from sale of common stock 0 11,073
--------------- --------------
Net cash provided by financing activities 1,429,771 5,002,249
--------------- --------------
NET INCREASE (DECREASE) IN CASH 41,364 213,134
CASH, BEGINNING OF PERIOD 5,863 14,686
--------------- --------------
CASH, END OF PERIOD 47,227 227,820
=============== ==============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid 535,962 191,673
=============== ==============
Income taxes paid 0 0
=============== ==============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE>
PAN WESTERN ENERGY CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 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 that if commodity prices remain at or above their
current levels, 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 of the periods presented
has been computed based upon the weighted average number of shares
outstanding of 3,621,873 and 3,465,331 for the nine months ended September
30, 1999 and 1998, respectively and 3,621,873 for the three months ended
September 30, 1999 and 1998, respectively.
Outstanding stock options and warrants have not been included in the
calculation for the three and nine month periods ended September 30, 1999
and September 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 1,300 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 Nine Months Ended
September 30 September 30
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
Average price:
Oil (per Bbl) $18.10 $12.20 $14.04 $14.12
Gas (per Mcf) $ 1.83 $ 1.62 $ 1.58 $ 1.70
Production:
Oil (Bbl) 8,966 8,944 32,396 28,533
Gas (Mcf) 143,210 79,434 357,489 184,810
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 decreased by $111,224 from a loss of $409,886
experienced for the third quarter ended September 30, 1998 to a loss of $298,662
for the third quarter ended September 30, 1999. The reduced loss experienced is
due primarily to increases in the Company's gas production and the average
prices received for oil and gas production coupled with a decrease of $46,016 in
lease operating expense, an increase in depreciation, depletion and amortization
expense of $12,312 and an increase of $2,217 in general and administrative
expenses.
Oil and gas sales were $424,056 for the third quarter of 1999 as compared
to $237,659 for the third quarter of 1998. This represents a increase of
$186,397 which is due primarily to increased oil and gas production and prices
experienced during the third quarter ended September 30, 1999 as compared to the
third quarter ended September 30, 1998. Oil production for the third quarter of
1999 was relatively flat as compared to the third quarter of 1998 while the
average price received by the Company for its oil production increased from
$12.20 during the third quarter of 1998 to $18.10 during the third quarter of
1999. Gas production for the third quarter of 1999 experienced a 80.3% increase
when compared to the third 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 third quarter ended September 30, 1999 would have
experienced a decrease of 17.4% as compared to the third quarter ended September
30, 1998. The average price for gas received by the Company increased to $1.83
during the third quarter of 1999 as compared to $1.62 received during the third
quarter of 1998.
Operating income declined by $1,422 during the three months ended September
30, 1999 to $16,411 as compared to $17,833 experienced during the three months
ended September 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 September 30, 1999 decreased $46,016 to $152,798 from $198,814 experienced
during the period ended September 30, 1998. Production taxes increased by
$12,755 from $15,940 experienced during the quarter ended September 30, 1998 to
$28,695 experienced during the quarter ended September 30, 1999. This increase
is attributable to the higher taxable value of the Company's production during
the third quarter ended September 30, 1999 as compared to the quarter ended
September 30, 1998. Other lease operating expense decreased by $58,771 from
$182,874 during the third quarter ended September 30, 1998 to $124,103
experienced during the third quarter ended September 30, 1999. This decrease is
primarily attributable to lower workover expense being incurred as well as decre
ased field maintenance operations being conducted during the third quarter ended
September 30, 1999 as compared to the third quarter ended September 30, 1998.
9
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Depreciation, depletion and amortization increased to $119,637 for the
three month period ended September 30, 1999 as compared to $107,325 during the
three month period ended September 30, 1998. This increase is due primarily to
the higher production levels for oil and gas experienced during the quarter
ended September 30, 1999 as compared to the quarter ended September 30, 1998
coupled with an increased oil and gas property asset amount.
Salaries and wages expense increased by $12,056 from $82,071 during the
third quarter ended September 30, 1998 to $94,127 during the quarter ended
September 30, 1999. The increase is attributable to the implementation of a 401k
plan by the Company during the first quarter of 1999.
General and administrative expenses increased by $2,217 from $147,071
during the quarter ended September 30, 1998 to $149,288 during the quarter ended
September 30, 1999. The increase in these expenses was due primarily to an
increase in professional services expense of $41,231, and an increase in
transportation expenses of $1,816. These increases are partially offset by a
decrease of $3,305 in insurance expense, a $24,922 decrease in loan fees, a
decrease of $2,969 in late fees, a $2,250 decrease in meals and entertainment
expense, a $2,721 decrease in postage expense, a $1,187 decrease in office
supplies expense, and a $3,716 decrease in telephone expense.
Other income (expense) increased from an expense of $130,097 experienced
during the quarter ended September 30, 1998 to an expense of $223,280 during the
quarter ended September 30, 1999. Major changes in items included in other
income and expense were as follows. Interest expense for the quarter ended
September 30, 1999 amounted to $219,260 as compared to $127,489 for the quarter
ended September 30, 1998. (Loss) gain on sale of assets for the quarter ended
September 30, 1998 amounted to a gain of $640 as compared to no loss or gain on
sale of assets during the third quarter ended September 30, 1999. In addition,
the Company recorded no interest income in the third quarter ended September 30,
1999 as compared to interest income in the amount of $1,544 recognized in the
quarter ended September 30, 1998. The increased interest expense is a result of
a substantially higher level of debt incurred by the Company during the quarter
ended September 30, 1999 as compared to the quarter ended September 30, 1998.
Nine months ended September 30, 1999 compared to nine months ended September 30,
1998.
The net loss of the Company increased by $353,824 from a loss of $833,688
experienced for the nine months ended September 30, 1998 to a loss of $1,187,512
for the nine months ended September 30, 1999. The increased loss experienced is
due primarily to the net effect of increased oil and gas sales revenues,
increased operating expenses and increased interest expense.
Oil and gas sales were $963,582 for the nine months ended September 30,
1999 as compared to $685,266 for the first nine months of 1998. This represents
an increase of $278,316 which was primarily attributable increased production
volumes for both oil and gas. Oil production for the first nine months of 1999
increased by 14% while the average price received
10
<PAGE>
decreased to $14.04 as compared to $14.12 for the first nine months of 1998. 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 nine months ended September 30, 1999 experienced a
93% increase when compared to the nine months ended September 30, 1998 while the
average price received for gas production declined from $1.70 received during
the nine months ended September 30, 1998 to $1.58 received during the nine
months ended September 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 nine months ended September 30, 1999 would have experienced a
decline of 9% as compared to the third quarter ended September 30, 1998.
Operating income declined by $11,072 during the nine months ended September
30, 1999 to $50,074 as compared to $61,146 experienced during the nine months
ended September 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 nine months
ended September 30, 1999 increased $53,964 to $461,267 from $407,303 experienced
during the period ended September 30, 1998. Production taxes increased by
$13,472 from $47,696 experienced during the nine months ended September 30, 1998
to $61,168 experienced during the nine months ended September 30, 1999. This
increase is attributable to the higher taxable value of the Company's production
during the nine months ended September 30, 1999 as compared to the nine month
period ended September 30, 1998. Other lease operating expense increased by
$40,492 from $359,607 during the nine months ended September 30, 1998 to
$400,099 experienced during the nine months ended September 30, 1999. This
increase is primarily attributable to increased workover and field maintenance
operations being conducted during the nine months ended September 30, 1999 as
compared to the nine month period ended September 30, 1998. The increased field
maintenance operations have been financed with proceeds from the credit facility
entered into by the Company in August, 1998.
Depreciation, depletion and amortization increased to $358,910 for the nine
month period ended September 30, 1999 as compared to $236,983 during the nine
month period ended September 30, 1998. This increase is due primarily to the
higher production levels for oil and gas experienced during the nine months
ended September 30, 1999 as compared to the nine month period ended September
30, 1998 coupled with an increased oil and gas property asset amount.
Salaries and wages expense increased by $20,511 from $281,016 during the
nine months ended September 30, 1998 to $301,527 during the nine months ended
September 30, 1999. The increase is attributable to salary increases which were
given to three employees effective August, 1998 as well as the expenses
attributable to the implementation of a 401k plan by the Company during the
first quarter of 1999.
General and administrative expenses increased by $50,768 from $401,735
during the nine months ended September 30, 1998 to $452,503 during the nine
months ended September 30,
11
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1999. The increase in these expenses was due primarily to an increase in
telephone and communication expense of $8,955, an increase in professional
services expense of $55,628, an increase in travel expenses of $3,368, an
increase of $6,168 in transportation expense, and an increase of $1,215 in bank
charges. These increases are partially offset by a decrease of $3,974 in
insurance expense, a $5,069 decrease in late charges, a decrease of $7,916 in
legal fees and a $8,126 decrease in printing and copying expense.
Other income (expense) increased from an expense of $253,064 experienced
during the nine months ended September 30, 1998 to an expense of $626,961 during
the nine months ended September 30, 1999. Interest expense for the nine months
ended September 30, 1998 amounted to $250,371 as compared to $613,233 for the
nine months ended September 30, 1999. This increase is attributable to the
higher level of total debt as of September 30, 1999 as compared to September 30,
1998. In addition, during the nine months ended September 30, 1999, the Company
reported a loss from rental operations of $15,204 as compared to a loss of
$11,179 realized during the nine months ended September 30, 1998. During the
nine months ended September 30, 1998, the Company realized a gain on sale of
assets of $3,935. The Company had no asset sales in the nine months ended
September 30, 1999. Also, during the nine months ended September 30, 1998, the
Company recognized $4,551 in interest income as compared to $1,475 recognized
during the nine month period ended September 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
unab le 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 September 30, 1999, the Company had a working capital
deficit of $2,236,620 as compared to a working capital deficit of $760,976 as of
December 31, 1998. During the nine month period ended September 30, 1999 the
Company experienced an increase in cash of $41,364. The total long and short
term debt of the Company as of September 30, 1999 amounted to $8,398,763 as
compared to $7,027,163 as of September 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 that if commodity prices remain at or above their current
level 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
12
<PAGE>
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
November, 1999. As an alternative, the Company is currently negotiating purchase
contracts with two other oil and gas accounting software package vendors whose
products are already Year 2000 compliant. 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.
13
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Part II. Other Information.
Item 1. Legal Proceedings.
Not applicable.
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: November 8, 1999 /s/ SID L. ANDERSON
------------------------------
Sid L. Anderson
President and Director
(Principal Executive Officer)
Date: November 8, 1999 /s/ CLAYTON E. WOODRUM
----------------------
Clayton E. Woodrum
Executive Vice President and Director
(Principal Financial Officer)
Date: November 8, 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 SEPTEMBER 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> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 181,883
<SECURITIES> 0
<RECEIVABLES> 116,811
<ALLOWANCES> 11,080
<INVENTORY> 0
<CURRENT-ASSETS> 337,114
<PP&E> 8,583,810
<DEPRECIATION> 2,314,182
<TOTAL-ASSETS> 6,748,715
<CURRENT-LIABILITIES> 2,573,734
<BONDS> 6,891,975
0
0
<COMMON> 47,032
<OTHER-SE> (3,264,219)
<TOTAL-LIABILITY-AND-EQUITY> 6,748,715
<SALES> 424,056
<TOTAL-REVENUES> 440,468
<CGS> 272,435
<TOTAL-COSTS> 515,850
<OTHER-EXPENSES> 4,019
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 219,260
<INCOME-PRETAX> (298,662)
<INCOME-TAX> 0
<INCOME-CONTINUING> (298,662)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (298,662)
<EPS-BASIC> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
