<PAGE> 1
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, 2000
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 No X
----- -----
As of June 30, 2000, 3,621,873 shares of the Registrants Common Stock, $0.01 par
value, were outstanding.
<PAGE> 2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Cautionary Statement Regarding Forward-Looking Statements. In the
interest of providing the Company's shareholders with certain information
regarding the Company, including management's assessment of the Company's future
plans and operations, certain statements set forth in this Form 10QSB contain or
are based on the Company's projections or estimates of revenue, income, earnings
per share and other financial items or relate to management's future plans and
objectives or to the Company's future economic and financial performance. All
such statements, other than statements of historical fact, contained in this
Form 10QSB "Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Item 7. Subsequent Events" generally are
accompanied by words such as "anticipate," "believe," "intend," "estimate,"
"project" or "expect" or similar statements. Such statements are "forward-
looking statements" within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, and are made pursuant to and in reliance on the safe harbor provisions
of such sections.
Although any forward-looking statements contained in this Form 10QSB or
otherwise expressed by or on behalf of the Company are, to the knowledge and in
the judgment of the officers and directors of the Company, reasonable and
expected to prove true, management is not able to predict the future with
certainty and no assurance can be given that such statements will prove correct.
Forward-looking statements involve known and unknown risks and uncertainties
which may cause the Company's actual performance and financial results in future
periods to differ materially from any projection, estimate or forecasted result.
These risks and uncertainties include, among other things: general economic and
business conditions; oil and gas industry conditions and trends; volatility of
oil and gas prices; product supply and demand; market competition; risks
inherent in the Company's oil and gas operations; imprecision of reserve
estimates; the Company's ability to replace and expand oil and gas reserves; the
Company's ability to generate sufficient cash flow from operations to meet its
current and future obligations; the Company's ability to access and terms of
external sources of debt and equity capital; and such other risks and
uncertainties described from time to time in the Company's periodic reports and
filings with the Securities and Exchange Commission. These and other risks are
described elsewhere in this Form 10QSB and will be described from time to time
in the Company's future filings with the Securities and Exchange Commission.
Accordingly, shareholders and potential investors are cautioned that certain
events or circumstances could cause actual results to differ materially from
those projected, estimated or predicted. In addition, forward-looking
statements are based on management's knowledge and judgment as of the date of
this Form 10QSB, and the Company does not intend to update any forward-looking
statements to reflect events occurring or circumstances existing hereafter.
2
<PAGE> 3
TABLE OF CONTENTS
Part I. Financial Information.
Item 1.
Consolidated Balance Sheets (Unaudited) as of June 30, 2000 and as of
December 31, 1999
Consolidated Statement of Operations (Unaudited) for the three and six
months ended June 30, 2000 and June 30, 1999
Consolidated Statement of Changes in Stockholders' Deficiency
(Unaudited) for the six months ended June 30, 2000
Consolidated Statements of Cash Flows (Unaudited) for the six months
ended June 30, 2000 and June 30, 1999
Notes to Unaudited Consolidated Financial Statements for the six months
ended June 30, 2000 and June 30, 1999.
Item 2.
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Part II. Other Information.
3
<PAGE> 4
ITEM 1. FINANCIAL STATEMENTS
PAN WESTERN ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
2000 December 31,
(Unaudited) 1999
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 33,570 $ 63,052
Restricted cash 287,035 137,584
Receivables:
Trade, net of allowance of $39,698 295,929 326,167
Due from stockholder 28,272 28,272
Prepaid expenses and other assets 89,185 106,595
Assets held for sale 233,185 237,214
------------ ------------
Total current assets 967,176 898,884
------------ ------------
Property and Equipment:
Oil and gas properties (successful efforts method) 8,200,793 8,200,792
Other property and equipment 92,293 113,592
------------ ------------
8,293,086 8,314,384
Less accumulated depreciation and depletion 2,973,834 2,642,284
------------ ------------
Net property and equipment 5,319,252 5,672,100
------------ ------------
Other assets, net of accumulated amortization 10,000 0
------------ ------------
Total Assets $ 6,296,428 $ 6,570,984
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 823,680 $ 857,850
Undistributed oil and gas revenues 148,061 195,768
Due to affiliated partnerships 25,590 25,590
Due to stockholder 39,862 15,945
Accrued liabilities 239,697 128,234
Current portion of long term obligations 8,566,245 8,427,917
------------ ------------
Total current liabilities 9,843,135 9,651,304
Net profits overriding royalty 500,193 500,193
------------ ------------
Total liabilities 10,343,328 10,151,497
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' DEFICIENCY:
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) 47,031 47,031
Additional paid in capital 1,999,372 1,999,372
Accumulated deficit (5,874,321) (5,407,934)
Treasury stock (1,081,250 shares of common stock) (218,982) (218,982)
------------ ------------
Total stockholders' deficiency (4,046,900) (3,580,513)
------------ ------------
Total Liabilities and Stockholders' Deficiency $ 6,296,428 $ 6,570,984
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
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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,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE:
Oil and gas sales $ 455,503 $ 325,069 $ 956,738 $ 539,526
Operating income 16,303 16,693 32,600 33,663
------------ ------------ ------------ ------------
471,806 341,762 989,338 573,189
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Lease operating 96,637 154,483 214,832 308,469
Salaries and wages 65,309 102,950 131,118 207,400
Depreciation, depletion and amortization 178,439 119,637 356,877 239,273
General and administrative 119,965 160,762 206,211 303,215
------------ ------------ ------------ ------------
460,350 537,832 909,038 1,058,357
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) 11,456 (196,070) 80,300 (485,168)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Loss from rental operations, net (1,205) (7,162) (4,134) (11,184)
Gain on sale of assets, net 0 0 6,500 0
Interest income 0 0 0 1,475
Interest expense (279,063) (208,204) (549,053) (393,973)
------------ ------------ ------------ ------------
(280,268) (215,366) (546,687) (403,682)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
NET LOSS $ (268,812) $ (411,436) $ (466,387) $ (888,850)
============ ============ ============ ============
NET LOSS PER SHARE $ (0.07) $ (0.11) $ (0.13) $ (0.25)
============ ============ ============ ============
Weighted average common shares 3,621,873 3,621,873 3,621,873 3,621,873
============ ============ ============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
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PAN WESTERN ENERGY CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Additional Total
Common Paid-In Accumulated Treasury Stockholders'
Stock Capital Deficit Stock Deficiency
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1999 $ 47,031 $ 1,999,372 $ (5,407,934) $ (218,982) $ (3,580,513)
Net loss (466,387) (466,387)
------------ ------------ ------------ ------------ ------------
Balances, June 30, 2000 $ 47,031 $ 1,999,372 $ (5,874,321) $ (218,982) $ (4,046,900)
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE> 7
PAN WESTERN ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, June 30,
2000 1999
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (466,387) $ (888,850)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation, depletion and amortization 356,877 239,273
Amortization of debt discount 64,820 41,053
(Gain) loss on sale of assets, net (6,500) 0
(Increase) decrease in receivables 30,238 82,756
(Increase) decrease in prepaid expenses and other assets 17,410 (4,849)
(Increase) decrease in other assets (10,000) 17,409
Increase (decrease) in accounts payable (34,170) (7,880)
Increase (decrease) in due to stockholder 23,917 0
Increase (decrease) in accrued liabilities 111,463 229,420
Increase (decrease) in undistributed oil and gas revenues (47,707) (52,255)
------------ ------------
Net cash provided by (used in) operating activities 39,961 (343,923)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures 0 (560,546)
Proceeds from the disposal of other property and equipment 6,500 0
------------ ------------
Net cash provided by (used in) investing activities 6,500 (560,546)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 81,298 1,097,646
Repayment of long-term debt (7,790) (108,368)
Decrease (increase) in restricted cash (149,451) (89,415)
------------ ------------
Net cash provided by (used in) financing activities (75,943) 899,863
------------ ------------
NET DECREASE IN CASH (29,482) (4,606)
CASH, BEGINNING OF PERIOD 63,052 5,863
------------ ------------
CASH, END OF PERIOD $ 33,570 $ 1,257
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 381,595 $ 179,553
============ ============
Income taxes paid $ -- $ --
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
7
<PAGE> 8
PAN WESTERN ENERGY CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(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 accounting principles generally
accepted in the United States of America 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, 1999 and 1998. The financial data for the interim periods presented
may not necessarily reflect the results to be anticipated for the complete year.
(2) Business Developments. During the six months ended June 30, 2000, the
Company incurred a net loss of $466,387. At June 30, 2000, the Company had a
working capital deficit of $8,875,959, and a stockholders' deficiency of
$4,046,900. During the years ended December 31, 1999 and 1998, the Company
incurred net losses of $1,550,838 and $2,317,394, respectively, and in 1999 and
1998 had operating cash flow deficiencies of $629,369 and $89,642, respectively.
At December 31, 1999 and 1998, the Company had working capital deficits of
$8,752,420 and $760,976, respectively and stockholders' deficiency of $3,580,513
and $2,029,675, respectively.
During the fourth quarter of 1999, the Company retained Albrecth &
Associates, Inc. to dispose of the Company's oil and gas properties. No offer to
purchase the properties was received prior to December 31, 1999 that was
sufficient to pay the Company's secured and unsecured creditors and efforts to
sell the properties were discontinued.
Operating results have negatively impacted the Company's liquidity to
the extent capital resources for development of existing properties were
unavailable and resulted in the Company's inability to make scheduled debt
payments. As a result, on June 14, 2000, the Company entered into
8
<PAGE> 9
a series of agreements with entities that are related to each other through
common ownership. The Company initially executed an agreement with its major
lender, Triassic Energy Partners, L.P. ("Triassic"), transferring substantially
all of the Company's oil and gas properties to Devonian Energy Partners, L.P.
("Devonian") in lieu of a foreclosure proceeding. The oil and gas properties
transferred to Devonian served as collateral for the repayment of approximately
$8.9 million (including amounts advanced to pay unsecured creditors as discussed
below) of non-recourse secured debt owed to Triassic by the Company. This debt
was assumed by Devonian and the Company was released from its debt obligation to
Triassic. The Company expects to recognize a gain of approximately $3.7 million
on this extinguishment of the Triassic debt. Further, as part of the
transaction, Triassic agreed to advance up to $590,000 to the Company under the
existing credit facility to pay unsecured creditors. In addition, Cambrian
Capital Partners, L.P. ("Cambrian") agreed to purchase from the Company the
greater of 402,430 shares or 10% of the Company's outstanding common stock for
$10,000. However, if the Company settles all outstanding unsecured liabilities
by August 31, 2000, and completes a merger with another corporation before
December 31, 2000, Cambrian will pay the Company additional consideration for
this stock equal to the lesser of $250,000 or the $590,000 made available by
Triassic under the credit facility less the payments made to the unsecured
creditors. As of August 31, 2000, the Company had settled substantially all of
the accounts payable included in the accompanying June 30, 2000 and December 31,
1999 balance sheets. The effective date of all of the transactions described
above was July 31, 2000.
These issues, among others, raise substantial doubt about the Company's
ability to continue as a going concern.
In July 2000, IntelliReady, Inc. and the Company initiated discussions
concerning a possible merger of the Company and IntelliReady, Inc. IntelliReady,
Inc. is a structured wiring company that provides home and commercial automation
services to its clients. IntelliReady, Inc. intends to use the proceeds of a
recent equity offering to expand its operations to include providing bundled
digital services and to open offices in several cities. Pursuant to the proposed
terms of the merger which include, among other provisions, that the Company owns
certain assets at the closing date, IntelliReady, Inc. will merge into a newly
created, wholly owned subsidiary of the Company. As a result of this
transaction, IntelliReady, Inc. stockholders will acquire approximately 95% of
the Company's outstanding common stock. The Company's board of directors
approved the merger on August 29, 2000. Although this transaction was scheduled
to close by August 31, 2000 and that date was not formally extended, the Company
and IntelliReady, Inc. are continuing to negotiate a merger of the companies. In
the event that the merger of the Company and IntelliReady, Inc. is not
completed, management intends to pursue other merger opportunities.
On May 15, 2000, the Company entered into a contract with an unrelated
party to sell the office building owned by the Company and used as its corporate
headquarters. The contract for the building stipulates a sales price of $275,000
less a 6% commission to be paid to the real estate agent handling the sale. The
first mortgage holder filed foreclosure action due to non-payment of principal
and interest when due. The closing on the sale of the building took place on
9
<PAGE> 10
September 17, 2000. The Company realized no proceeds from the sale after
repayment of the first and second mortgages, aggregating approximately $240,000,
and the expenses of the sale. At June 30, 2000 and December 31, 1999, the net
carrying value of the office building is presented as an asset held for sale in
the accompanying balance sheet.
The Company's common stock was delisted from the Over-the-Counter
Bulletin Board ("OTC:BB") on May 15, 2000 because of the Company's failure to
comply with certain OTC:BB and Securities and Exchange Commission reporting
requirements. The Company is in the process of taking the steps necessary to
relist its common stock on the OTC:BB.
(3) 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 3,621,873 for the six months ended June 30, 2000 and 1999,
respectively and 3,621,873 and 3,621,873 for the three months ended June 30,
2000 and 1999, respectively.
Outstanding stock options and warrants have not been included in the
calculation for the three and six month periods ended June 30, 2000 and June 30,
1999 since their effect on net loss per share is antidilutive.
(4) Commitments and Contingencies. The Company is involved in litigation
primarily related to claims by unsecured creditors and foreclosure action filed
by the first mortgage holder on the Company's office building. The proceeds the
Company received from the September 7, 2000 sale of its office building were
adequate to repay the outstanding mortgages on that facility. Further,
management believes that the suits filed by unsecured creditors will be settled
for amounts which, when aggregated with payments made to remaining unsecured
creditors, will not exceed the $590,000 advance available under the Triassic
credit facility.
The Company has executed employment agreements with certain executive
officers, which expire on the later of specified dates in the year 2000 or the
date to which the agreement has been extended; or, in the case of the Company's
president, as long as the president guarantees the Company's debt. Under the
terms of these agreements, the executives will receive annual salaries
aggregating $202,000. In addition, the Company's president will receive
incentive compensation equal to 10% of the Company's annual pre-tax income in
excess of $150,000. The other executive officers will share in a bonus pool
equal to 10% of the Company's net income in excess of $100,000. In the event of
the executives' termination without cause, as defined in the agreements, the
Company must pay them these amounts for the remaining term of the agreements.
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
PURCHASE OF OIL AND GAS PROPERTIES.
The Company did not make any acquisitions of oil and gas properties
during the quarter ended June 30, 2000.
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.
11
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<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------------- -----------------------
2000 1999 2000 1999
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Average price:
Oil (per Bbl) $ 26.97 $ 15.04 $ 25.94 $ 12.48
Gas (per Mcf) $ 2.40 $ 1.37 $ 2.34 $ 1.41
Production:
Oil (Bbl) 6,503 10,815 13,284 23,430
Gas (Mcf) 116,714 118,865 261,388 214,279
</TABLE>
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999.
The net loss of the Company decreased by $142,624 from a loss of
$411,436 experienced for the second quarter ended June 30, 1999 to a loss of
$268,812 for the second quarter ended June 30, 2000. The reduced loss
experienced is due primarily to increases in the average prices received for oil
and gas production coupled with a decrease of $57,846 in lease operating
expense, an increase in depreciation, depletion and amortization expense of
$58,802, a decrease of $40,797 in general and administrative expenses and a
decrease in salary and wages of $37,641.
Oil and gas sales were $455,503 for the second quarter of 2000 as
compared to $325,069 for the second quarter of 1999. This represents an increase
of $130,434 which is due primarily to increased prices experienced during the
second quarter ended June 30, 2000 as compared to the second quarter ended June
30, 1999. Oil production for the second quarter of 2000 was down as compared to
the second quarter of 1999 while the average price received by the Company for
its oil production increased from $15.04 during the second quarter of 1999 to
$26.97 during the second quarter of 2000. Gas production for the second quarter
of 2000 was relatively flat when compared to the second quarter of 1999. The
average price for gas received by the Company increased to $2.40 during the
second quarter of 2000 as compared to $1.37 received during the second quarter
of 1999.
Operating income declined by $390 during the three months ended June
30, 2000 to $16,303 as compared to $16,693 experienced during the three months
ended June 30, 1999. This decrease is primarily attributable to overhead
expenses being charged to one less well that is operated by the Company.
Lease operating expenses, including production taxes, for the three
months ended June 30, 2000 decreased $57,846 to $96,637 from $154,483
experienced during the period ended June 30, 1999. Production taxes increased by
$15,287 from $15,616 experienced during the quarter ended June 30, 1999 to
$30,903 experienced during the quarter ended June 30, 2000. This increase is
attributable to the higher taxable value of the Company's production during the
second quarter ended June 30, 2000 as compared to the quarter ended June 30,
1999. Other lease operating expense decreased by $73,133 from $138,867 during
the second quarter ended June 30, 1999 to $65,734
12
<PAGE> 13
experienced during the second quarter ended June 30, 2000. This decrease is
primarily attributable to lower workover expense being incurred as well as
decreased field maintenance operations being conducted during the second quarter
ended June 30, 2000 as compared to the second quarter ended June 30, 1999.
Depreciation, depletion and amortization increased to $178,439 for the
three-month period ended June 30, 2000 as compared to $119,637 during the
three-month period ended June 30, 1999. This increase is due primarily to the
higher production levels on the Company's Texas Hugoton properties during the
quarter ended June 30, 2000 as compared to the quarter ended June 30, 1999.
Salaries and wages expense decreased by $37,641 from $102,950 during
the second quarter ended June 30, 1999 to $65,309 during the quarter ended June
30, 2000. The decrease is attributable to having three fewer employees during
the quarter ended June 30, 2000.
General and administrative expenses decreased by $40,797 from $160,762
during the quarter ended June 30, 1999 to $119,965 during the quarter ended June
30, 2000. The decrease in these expenses is primarily attributable to having
three less employees during the three months ended June 30, 2000 and other
expense reductions necessitated by the cash flow restrictions experienced by the
Company during the three months ended June 30, 2000. Expenses in this category
which experienced significant decreases included travel expense which declined
by $13,710, and telephone and communications expense which decreased by $7,210.
In addition, professional services expense declined by $12,723 due to a change
in the reservoir engineering firm used by the Company during the quarter ended
June 30, 2000 and, insurance expense declined by $7,758 which was reduced due to
a change in insurance carriers.
Other income (expense) increased from an expense of $215,366
experienced during the quarter ended June 30, 1999 to an expense of $280,268 the
quarter ended June 30, 2000. Major changes in items included in other income and
expense were as follows. Interest expense for the quarter ended June 30, 2000
amounted to $279,063 as compared to $208,204 for the 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, 2000 as well
as higher interest rates on the Company's floating rate debt as compared to the
quarter ended June 30, 1999.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999.
The net loss of the Company decreased by $422,463 from a loss of
$888,850 experienced for the six months ended June 30, 1999 to a loss of
$466,387 for the six months ended June 30, 2000. The decreased loss experienced
is due primarily to the net effect of increased oil and gas sales revenues,
decreased operating expenses and increased interest expense.
Oil and gas sales were $956,738 for the six months ended June 30, 2000
as compared to $539,526 for the first six months of 1999. This represents an
increase of $417,212 which was primarily attributable increased prices for both
oil and gas. Oil production for the first six months
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<PAGE> 14
of 2000 decreased by 43% while the average price received increased to $25.94 as
compared to $12.48 for the first six months of 1999. The decrease in oil
production was primarily a result of a loss of a well on the Company's Borden
County, Texas properties which occurred in the fourth quarter of 1999. Gas
production for the six months ended June 30, 2000 experienced a 22% increase
when compared to the six months ended June 30, 1999 while the average price
received for gas production increased from $1.41 received during the six months
ended June 30, 1999 to $2.34 received during the six months ended June 30, 2000.
Operating income declined by $1,063 during the six months ended June
30, 2000 to $32,600 as compared to $33,663 experienced during the six months
ended June 30, 1999. This decrease is primarily attributable to overhead
expenses being charged to one less well which was operated by the Company.
Lease operating expenses, including production taxes, for the six
months ended June 30, 2000 decreased $93,637 to $214,832 from $308,469
experienced during the period ended June 30, 1999. Production taxes increased by
$33,707 from $32,472 experienced during the six months ended June 30, 1999 to
$66,179 experienced during the six months ended June 30, 2000. This increase is
attributable to the higher taxable value of the Company's production during the
six months ended June 30, 2000 as compared to the six-month period ended June
30, 1999. Other lease operating expense decreased by $127,343 from $275,996
during the six months ended June 30, 1999 to $148,653 experienced during the six
months ended June 30, 2000. This decrease is primarily attributable to decreased
workover and field maintenance operations being conducted during the six months
ended June 30, 2000 as compared to the six-month period ended June 30, 1999.
Depreciation, depletion and amortization increased to $356,877 for the
six-month period ended June 30, 2000 as compared to $239,273 during the
six-month period ended June 30, 1999. This increase is due primarily to the
higher production levels for gas experienced during the six months ended June
30, 2000 as compared to the six month period ended June 30, 1999 coupled with an
increased oil and gas property asset amount.
Salaries and wages expense decreased by $76,282 from $207,400 during
the six months ended June 30, 1999 to $131,118 during the six months ended June
30, 2000. The decrease is attributable to having three less employees during the
six months ended June 30, 2000.
General and administrative expenses declined by $97,004 from $303,215
during the six months ended June 30, 1999 to $206,211 during the six months
ended June 30, 2000. The decrease in these expenses was primarily attributable
to having three fewer employees and other expense reductions necessitated by
cash flow restrictions experienced by the Company during the six months ended
June 30, 2000. Expenses which experienced significant decreases included travel
expense which declined by $24,444, meals and entertainment expense which
decreased by $15,320, accounting and audit expense which declined by $22,247,
transportation expense which declined by $2,747, dues and subscriptions expense
which declined by $1,203, office supplies expense which declined by $2,612,
postage and courier expense which declined by $1,780, and telephone and
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communications expense which decreased by $15,500. In addition, insurance
expense declined by $12,673 which was reduced due to a change in insurance
carriers during the six months ended June 30, 2000.
Other income (expense) increased from an expense of $403,682
experienced during the six months ended June 30, 1999 to an expense of $546,687
during the six months ended June 30, 2000. Interest expense for the six months
ended June 30, 1999 amounted to $393,073 as compared to $549,053 for the six
months ended June 30, 2000. This increase is attributable to the higher level of
total debt as of June 30, 2000 as compared to June 30, 1999 as well as the
higher interest rate charged on the Company's floating rate debt. In addition,
during the six months ended June 30, 2000, the Company reported a loss from
rental operations of $4,134 as compared to a loss of $11,184 realized during the
six months ended June 30, 1999. During the six months ended June 30, 1999, the
Company realized no gain on sale of assets as compared to a gain of $6,500
during the six months ended June 30, 2000. Also, during the six months ended
June 30, 1999, the Company recognized $1,475 in interest income as compared to
none recognized during the six month period ended June 30, 2000.
CAPITAL RESOURCES AND LIQUIDITY.
The Company's capital requirements related primarily to the development
of oil and gas properties. In general, because the Company's oil and gas
reserves are depleted by production, the success of its business strategy was
dependent upon a continuous acquisition and exploration and development program
that was significantly impaired as a result of the Company's inability to secure
capital needed for acquisitions and development. As of June 30, 2000, the
Company had a working capital deficit of $8,875,959 as compared to a working
capital deficit of $8,752,420 as of December 31, 1999. During the six-month
period ended June 30, 2000 the Company experienced a decrease in cash of
$29,482. The total long and short-term debt, including the net profits
overriding royalty, of the Company as of June 30, 2000 amounted to $9,066,438 as
compared to $8,501,869 as of June 30, 1999 and $8,928,110 as of December 31,
1999. See "Item 7. Subsequent Events".
NEW ACCOUNTING STANDARD.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). In June 2000, Statement of
Financial Accounting Standards No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities" ("SFAS No. 138"), an amendment of
SFAS No. 133, was issued. The statement, as amended by SFAS No. 138, establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that an entity recognize all derivatives, at fair value,
as either assets or liabilities in the statement of financial position with an
offset either to shareholder's equity and comprehensive income or income
depending upon the classification of the derivative. The Company has not
determined the impact on its financial statements that may result from adoption
of SFAS No. 133, as amended by SFAS No. 138, which is required no later than
January 1, 2001.
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PART II. OTHER INFORMATION.
Item 1. Legal Proceedings.
During 1999, the Company was a party to various legal proceedings
including claims resulting from non-payment of unsecured creditors. In spite of
cost cutting measures including personnel and salary reductions, the Company was
unable to consistently pay a portion of its operating expenses which was the
direct result of record low oil and natural gas prices during all or portions of
calendar years 1997, 1998 and 1999. At this time, the Company has or is in the
process of settling legal proceedings resulting from non-payment of unsecured
creditors claims (also see "Item 7. Subsequent Events"). To management's
knowledge, no further legal proceedings from unsecured creditors are
contemplated. In addition, the Company was a party to a foreclosure action on
the real estate it owned and occupied as its corporate headquarters. A contract
for the sale of the building was entered into with an unrelated third party and
the closing took place on September 7, 2000. The Company realized no proceeds
from the sale after repayment of the first and second mortgages and the expenses
of the sale.
No director, officer or affiliate of the Company, no owner of record or
beneficial owner of more than five percent of the securities of the Company, or
any associate of any such director, officer or security holder, nor stockholders
of IntelliReady is a party adverse to the Company or has a material interest
adverse to the Company in reference to the various legal proceedings.
Item 2. Changes in Securities.
The Company's common stock was delisted from the Over-the-Counter:
Bulletin Board ("OTC:BB") on May 15, 2000 because of the Company's failure to
comply with Rule 15c2-11. The Company is in the process of taking the steps
necessary to get its common stock listed again on OTC:BB. It is anticipated this
process will be completed by September 30, 2000.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the second quarter ended June 30, 2000
to a vote of the security holders.
Item 5. Other Information.
Not applicable.
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Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
Item 7. Subsequent Events.
DISPOSITION OF OIL AND GAS PROPERTIES. During the fourth quarter of 1999, the
Company retained Albrecth & Associates, Inc., Houston, Texas, to dispose of the
Company's oil and gas properties. Albrecth & Associates, Inc. specializes in the
disposition of oil and gas properties and is one of the leaders in this
specialized field. No offer to purchase the properties was received prior to
December 31, 1999 that was sufficient to pay the Company's secured and unsecured
creditors and efforts to sell the properties were discontinued.
On June 14, 2000, the Company entered into a series of agreements with entities
that are related to each other through common ownership. The Company initially
executed an agreement with its major lender, Triassic Energy Partners, L.P.
("Triassic"), transferring substantially all of the Company's oil and gas
properties to Devonian Energy Partners, L.P. ("Devonian") in lieu of a
foreclosure proceeding. The oil and gas properties transferred to Devonian
served as collateral for the repayment of approximately $8.9 million (including
amounts advanced to pay unsecured creditors as discussed below) of non-recourse
secured debt owed to Triassic by the Company. This debt was assumed by Devonian
and the Company was released from its debt obligation to Triassic. The Company
expects to recognize a gain of approximately $3.7 million on this extinguishment
of the Triassic debt. Further, as part of the transaction, Triassic agreed to
make up to $590,000 available to the Company under the existing credit facility
to pay unsecured creditors. In addition, Cambrian Capital Partners, L.P.
("Cambrian") agreed to purchase from the Company the greater of 402,430 shares
or 10% of the Company's outstanding common stock for $10,000. However, if the
Company settles all outstanding unsecured liabilities by August 31, 2000 and
completes a merger with another corporation before December 31, 2000, Cambrian
will pay the Company additional consideration for this stock equal to the lesser
of $250,000 or the $590,000 made available by Triassic under the credit facility
less the payments made to the unsecured creditors. As of August 31, 2000, the
Company had settled substantially all of the accounts payable included on the
December 31, 1999 balance sheet. The effective date of the transaction described
above was July 31, 2000.
INTELLIREADY, INC. TRANSACTION. In July of 2000, IntelliReady, Inc.
approached the Company concerning a possible merger of the Company and
IntelliReady, Inc. IntelliReady, Inc. is a structured wiring company that
provides home and commercial automation services to its clients. IntelliReady,
Inc. currently operates in the Denver Metropolitan Area but expects to expand
its operation into an additional metropolitan market by the end of calendar year
2000. IntelliReady, Inc. has recently raised $1,500,000 in equity through a
Regulation D, Rule 506 offering pursuant to the Securities Act
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of 1933. IntelliReady, Inc. intends to use the proceeds of the offering to
rapidly expand its operations to include providing bundled digital services and
to open offices in several additional cities. Pursuant to the proposed terms of
the merger, which include, among other provisions, that the Company owns certain
assets at the closing date, IntelliReady, Inc. will merge into a newly created,
wholly owned subsidiary of the Company in exchange for approximately 95% of the
Company's common stock. The Company's board of directors approved the merger on
August 29, 2000. Although this transaction was scheduled to close by August 31,
2000 and that date was not formally extended, the Company and IntelliReady, Inc.
are continuing to effect a merger of the two companies.
NON-RENEWAL OF AMOCO LICENSE. Because of the Company's inability to
generate sufficient cash flows to sustain its operations at pre-1999 levels, the
Company elected not to renew its licensing arrangement with Amoco. This decision
was made in part based on the Company's inability to secure the capital
necessary to implement the technology covered by the licensing agreement.
SALE OF COMPANY OWNED OFFICE BUILDING. On May 15, 2000, the Company
entered into a contract with an unrelated party to sell the office building
owned by the Company and used as its corporate headquarters. The contract price
for the building is $275,000 less a 6% commission to be paid to the real estate
agency handling the sale. The closing on the sale of the building took place on
September 7, 2000. The Company realized no proceeds from the sale after
repayment of the first and second mortgages, aggregating approximately $240,000,
and the expenses of the sale.
PAN WESTERN COMMON STOCK DELISTED FROM OVER-THE-COUNTER:BULLETIN BOARD
("OTC:BB"). The Company's common stock was delisted from OTC:BB on May 15, 2000
because of the Company's failure to comply with Rule 15c2-11. The Company is in
the process of taking the steps necessary to get its common stock listed again
on OTC:BB. It is anticipated this process will be completed by September 30,
2000.
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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: September 15, 2000 /s/ SID L. ANDERSON
-----------------------------
Sid L. Anderson
President and Director
(Principal Executive Officer)
Date: September 15, 2000 /s/ CLAYTON E. WOODRUM
-----------------------------
Clayton E. Woodrum
Executive Vice President and Director
(Principal Financial Officer)
Date: September 15, 2000 /s/ VINCENT R. KEMENDO
-----------------------------
Vincent R. Kemendo
Vice President - Finance
(Principal Accounting Officer)
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<S> <C>
27 Financial Data Schedule
</TABLE>
