<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 March 31, 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 March 31, 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 in "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 March 31, 2000 and
as of December 31, 1999
Consolidated Statement of Operations (Unaudited) for the three months
ended March 31, 2000 and March 31, 1999
Consolidated Statement of Changes in Stockholders' Deficiency
(Unaudited) for the three months ended March 31, 2000
Consolidated Statements of Cash Flows (Unaudited) for the three months
ended March 31, 2000 and March 31, 1999
Notes to Unaudited Consolidated Financial Statements for the three
months ended March 31, 2000 and March 31, 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>
March 31,
2000 December 31,
Unaudited 1999
-------------- --------------
<S> <C> <C>
ASSETS
------
Current Assets:
Cash $ 19,305 $ 63,052
Restricted cash 319,332 137,584
Receivables:
Trade, net of allowance of $39,698 289,518 326,167
Due from stockholder 28,272 28,272
Prepaid expenses and other assets 97,890 106,595
Assets held for sale 235,200 237,214
------------ ------------
Total current assets 989,517 898,884
------------ ------------
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 2,797,410 2,642,284
------------ ------------
Net property and equipment 5,495,676 5,672,100
------------ ------------
Total Assets $ 6,485,193 $ 6,570,984
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable $ 893,918 $ 857,850
Undistributed oil and gas revenues 146,905 195,768
Due to affiliated partnerships 25,590 25,590
Due to stockholder 27,904 15,945
Accrued liabilities 216,234 128,234
Current portion of long term obligations 8,452,537 8,427,917
------------ ------------
Total current liabilities 9,763,088 9,651,304
Net profits overriding royalty 500,193 500,193
------------ ------------
Total liabilities 10,263,281 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 (5,605,509) (5,407,934)
Treasury stock (1,081,250 shares) (218,982) (218,982)
------------ ------------
Total stockholders' deficiency (3,778,088) (3,580,513)
------------ ------------
Total Liabilities and Stockholders' Deficiency $ 6,485,193 $ 6,570,984
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
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PAN WESTERN ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
REVENUE:
Oil and gas sales $ 501,235 $ 214,457
Operating income 16,297 16,970
----------- -----------
517,532 231,427
----------- -----------
OPERATING EXPENSES:
Lease operating 118,195 153,986
Salaries and wages 65,809 104,450
Depreciation, depletion and amortization 178,438 119,637
General and administrative 86,246 142,453
----------- -----------
448,688 520,526
----------- -----------
OPERATING INCOME (LOSS) 68,844 (289,099)
----------- -----------
OTHER INCOME (EXPENSE):
Loss from rental operations, net (2,929) (4,021)
Gain on sale of assets, net 6,500 0
Interest income 0 1,475
Interest expense (269,990) (185,769)
----------- -----------
(266,419) (188,315)
----------- -----------
NET LOSS $ (197,575) $ (477,414)
=========== ===========
NET LOSS PER SHARE $ (0.05) $ (0.13)
=========== ===========
Weighted average common shares 3,621,873 3,621,873
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
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PAN WESTERN ENERGY CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
FOR THE THREE MONTHS ENDED MARCH 31, 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 (197,575) (197,575)
----------- ----------- ----------- ----------- -----------
Balances, March 31, 2000 $ 47,031 $ 1,999,372 $(5,605,509) $ (218,982) $(3,778,088)
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
6
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PAN WESTERN ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(197,575) $(477,414)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation, depletion and amortization 178,438 119,637
Amortization of debt discount 32,410 22,041
Gain on sale of assets, net (6,500) 0
(Increase) decrease in receivables 36,649 85,348
(Increase) decrease in prepaid expenses and other assets 8,705 (4,358)
(Increase) decrease in other assets 0 9,411
Increase (decrease) in accounts payable 36,068 (176,867)
Increase (decrease) in due to stockholder 11,959 0
Increase (decrease) in accrued liabilities 88,000 19,241
Increase (decrease) in undistributed oil and gas revenues (48,863) (56,676)
--------- ---------
Net cash provided by (used in) operating activities 139,291 (459,637)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures 0 (415,501)
Proceeds from the disposal of other property and equipment 6,500 0
--------- ---------
Net cash provided by (used in) investing activities 6,500 (415,501)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 0 844,252
Repayment of long-term debt (7,790) (107,147)
Decrease (increase) in restricted cash (181,748) 145,562
--------- ---------
Net cash provided by (used in) financing activities (189,538) 882,667
--------- ---------
NET INCREASE (DECREASE) IN CASH (43,747) 7,529
CASH, BEGINNING OF PERIOD 63,052 5,863
--------- ---------
CASH, END OF PERIOD $ 19,305 $ 13,392
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 152,568 $ 162,287
========= =========
Income taxes paid $ -- $ --
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
7
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PAN WESTERN ENERGY CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 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 quarter ended March 31, 2000, the Company
incurred a net loss of $197,575. At March 31, 2000, the Company had a working
capital deficit of $8,773,571, and a stockholders' deficiency of $3,778,088.
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 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
8
<PAGE> 9
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 March 31,
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. At March 31,2000 and December 31, 1999, the net carrying
value of the office building is presented as an asset held for sale in the
accompanying
9
<PAGE> 10
balance sheet. 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.
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 three months ended March 31, 2000 and 1999,
respectively.
Outstanding stock options and warrants have not been included in the
calculation for the three month periods ended March 31, 2000 and March 31, 1999
since their effect on net loss per share is anti-dilutive.
(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 March 31, 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.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------
2000 1999
--------- --------
<S> <C> <C>
Average price:
Oil (per Bbl) $ 24.95 $ 10.29
Gas (per Mcf) $ 2.29 $ 1.47
Production:
Oil (Bbl) 6,781 12,615
Gas (per Mcf) 144,674 95,414
</TABLE>
11
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THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999.
The net loss of the Company decreased by $279,839 from a loss of
$477,414 experienced for the first quarter ended March 31, 1999 to a loss of
$197,575 for the first quarter ended March 31, 2000. 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 $35,791 in lease operating expense, an increase in depreciation, depletion
and amortization expense of $58,801 and a decrease of $56,207 in general and
administrative expenses and a decrease in salaries and wages of $38,641.
Oil and gas sales were $501,235 for the first quarter of 2000 as
compared to $214,457 for the first quarter of 1999. This represents a increase
of $286,778 which is due primarily to increased gas production and increased oil
and gas prices experienced during the first quarter ended March 31, 2000 as
compared to the first quarter ended March 31, 1999. Oil production for the first
quarter of 2000 declined by 5,834 Bbls as compared to the first quarter of 1999
while the average price received by the Company for its oil production increased
from $10.29 during the first quarter of 1999 to $24.95 during the first quarter
of 2000. Gas production for the first quarter of 2000 experienced a 52% increase
when compared to the first quarter of 1999. This increase is a result of gas
produced on the Company's Texas Hugoton properties on which several
recompletions were completed by second quarter of 1999. The average price for
gas received by the Company increased to $2.29 during the first quarter of 2000
as compared to $1.47 received during the first quarter of 1999.
Operating income declined by $673 during the three months ended March
31, 2000 to $16,297 as compared to $16,970 experienced during the three months
ended March 31, 1999. This decrease is primarily attributable to overhead
expenses being charged on one less well.
Lease operating expenses, including production taxes, for the three
months ended March 31, 2000 decreased $35,791 to $118,195 from $153,986
experienced during the three-month period ended March 31, 1999. Production taxes
increased by $18,419 from $16,857 experienced during the quarter ended March 31,
1999 to $35,276 experienced during the quarter ended March 31, 2000. This
increase is attributable to the higher taxable value of the Company's production
during the first quarter ended March 31, 2000 as compared to the quarter ended
March 31, 1999. Other lease operating expense decreased by $54,210 from $137,129
during the first quarter ended March 31, 1999 to $82,919 experienced during the
first quarter ended March 31, 2000. This decrease is primarily attributable to
lower workover expense being incurred as well as decreased field maintenance
operations being conducted during the first quarter ended March 31, 2000 as
compared to the first quarter ended March 31, 1999.
12
<PAGE> 13
Depreciation, depletion and amortization increased to $178,438 for the
three month period ended March 31, 2000 as compared to $119,637 during the three
month period ended March 31, 1999. This increase is due primarily to the higher
production levels for gas experienced during the quarter ended March 31, 2000 as
compared to the quarter ended March 31, 1999.
General and administrative expenses decreased by $56,207 from $142,453
during the quarter ended March 31, 1999 to $86,246 during the quarter ended
March 31, 2000. The decrease in these expenses is primarily attributable to
having three less employees during the three months ended March 31, 2000 and
other expense reductions necessitated by the cash flow restrictions experienced
by the Company during the three months ended March 31, 2000. The only expense in
this category to experience an increase from the comparable period ended March
31, 1999 was legal expense which increased by $8,767. Expenses in this category
which declined as compared to the three months ended March 31, 1999 were as
follows: accounting and audit expenses declined by $5,867, dues and
subscriptions declined by $953, insurance declined by $5,343 as a result of a
change in carrier, meals and entertainment declined by $7,508, office supplies
declined by $1,089, postage expense declined by $777, telephone and
communications expense declined by $7,408, travel expense declined by $12,888,
and professional services expense declined by $20,024 as a result of a change in
reservoir engineers used by the Company.
Salaries and wages expense decreased by $38,641 from $104,450 during
the first quarter ended March 31, 1999 to $65,809 during the quarter ended March
31, 2000. The decrease is attributable to having three fewer employees for the
quarter ended March 31, 2000.
Other income (expense) increased from an expense of $188,315
experienced during the quarter ended March 31, 1999 to an expense of $266,419
during the quarter ended March 31, 2000. Major changes in items included in
other income and expense were as follows. Interest expense for the quarter ended
March 31, 2000 amounted to $269,990 as compared to $185,769 for the quarter
ended March 31, 1999. Gain on sale of assets for the quarter ended March 31,
2000 amounted to a gain of $6,500 as compared to no loss or gain on sale of
assets during the first quarter ended March 31, 1999. In addition, the Company
recorded no interest income in the first quarter ended March 31, 2000 as
compared to interest income in the amount of $1,475 recognized in the 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, 2000 as compared to the quarter ended March 31, 1999. In
addition, the prime rate on which a major portion of the Company's interest is
calculated, was higher during the quarter ended March 31, 2000 as compared to
the quarter ended March 31, 1999.
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
13
<PAGE> 14
development program that was significantly impaired as a result of the Company's
inability to secure capital needed for acquisitions and development. As of March
31, 2000, the Company had a working capital deficit of $8,773,571 as compared to
a working capital deficit of $8,752,420 as of December 31, 1999. During the
three month period ended March 31, 2000 the Company experienced a decrease in
cash of $43,747. The total long and short term debt, including the net profits
overriding royalty, of the Company as of March 31, 2000 amounted to $8,952,730
as compared to $8,233,672 as of March 31, 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.
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
creditor 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.
14
<PAGE> 15
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 first quarter ended March 31, 2000
to a vote of the security holders.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
None.
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
15
<PAGE> 16
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 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.
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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.
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)
17
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<S> <C>
27 Financial Data Schedule
</TABLE>
