UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITITES EXCHANGE
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ACT OF 1934. For the fiscal year ended April 30, 1998
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
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OF 1934
Commission file number 0-22661
VECTOR ENERGY CORPORATION
(Name of small business issuer in its charter)
Texas Applied For
(State or other jurisdiction of (I.R.S. Employer)
incorporation or organization) Identification No.)
5599 San Felipe, Suite 620, Houston, Texas 77056
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 850-9993
Securities registered pursuant to Section 12(b) of the Exchange Act:
NONE
Securities registered pursuant to Section 12(g) of the Exchange Act:
Name of Each Exchange
Title of Each Class On Which registered
------------------- -------------------
Common Stock, no par value None
Series A Convertible Preferred Stock, no par value None
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 .
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Check if there is no disclosure of delinquent filers in response to item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB. X .
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State issuer's revenues for its most recent fiscal year. $0
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked price of such common
equity, as of a specified date within the past 60 days. $2,287,553
as of July 17, 1998.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. 3,555,051 shares of common
stock, no par value, were outstanding as of July 17, 1998.
Documents Incorporated by Reference:
Sunburst Acquisitions II, Inc. proxy statement filed in connection with
the Special Meeting of Shareholders held on June 19, 1998 (to the extent set
forth in Part III of this Form 10-KSB).
Transitional Small Business Disclosure Format (Check one). Yes No X
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<PAGE>
VECTOR ENERGY CORPORATION
1998 FORM 10-KSB ANNUAL REPORT
This Form 10-KSB includes "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. All statements other than
statements of historical facts included in this Form 10-KSB, including
without limitation the statements under "Business", "Properties" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" regarding the nature of the Company's oil and gas reserves,
productive wells, acreage, and drilling activities, the adequacy of the
Company's financial resources, current and future industry conditions and the
potential effects of such matters on the Company's business strategy, results
of operations and financial position, are forward-looking statements. Although
the Company believes that the expectations reflected in the forward-looking
statements contained herein are reasonable, no assurance can be given that
such expectations will prove to have been correct. Certain important factors
that could cause actual results to differ materially from expectations
("Cautionary Statements"), including without limitation fluctuations of the
prices received for the Company's oil and natural gas, uncertainty of drilling
results and reserve estimate, competition from other exploration, development
and production companies, operating hazards, abandonment costs, the effects of
governmental regulation and the leveraged nature of the Company, are stated
herein in conjunction with the forward-looking statements or are included
elsewhere in this Form 10-KSB. All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the Cautionary Statements.
PART I Item 1. Business General
Vector Energy Corporation (the "Company") was incorporated under the laws
of the State of Texas on June 18, 1998 as a wholly owned subsidiary of Sunburst
Acquisitions II, Inc. ("Sunburst"). The Company was formed for the purpose of
completing a reverse merger with Sunburst in order to change Sunburst's name to
Vector Energy Corporation and its state of incorporation from Colorado to
Texas. This merger was completed on June 19, 1998. As a result of this
merger, the outstanding stock in the surviving corporation was reduced from
approximately 22.5 million shares to approximately 6.6 million shares. All
references to shares of stock are on a post-merger basis.
Sunburst was incorporated under the laws of the State of Colorado on March
17, 1997 as a "shell" company. Sunburst's business plan was to seek,
investigate, and, if warranted, acquire one or more properties or businesses,
and to pursue other related activities intended to enhance shareholder value.
Sunburst elected to voluntarily file a registration statement on Form 10-SB in
order to become a reporting company under the Securities Exchange Act of 1934
and has continued to file periodic reports required under the Exchange Act.
On May 8, 1998, Sunburst entered into an asset acquisition transaction in
which it acquired substantially all of its present operating assets. The
transaction consisted of an Asset Purchase Agreement executed by the Company
and Old Vector Corporation (formerly Vector Energy Corporation), a Texas
corporation ("Old Vector") under which Old Vector transferred substantially all
of its assets to Sunburst, including its rights to two asset purchase
agreements with Lisbon Development Company, L.L.C., a Texas limited liability
<PAGE>
company ("Lisbon"), and Taurus Operating, Inc., a Texas corporation ("Taurus")
dated March 23, 1998 and March 31, 1998, respectively. Other than the
rights to the above mentioned asset purchase agreements with Lisbon and
Taurus, Old Vector's assets acquired by Sunburst consisted of non-operated
working interests and royalty interests in approximately 80 producing oil
and gas wells located primarily in Oklahoma and Kansas. Sunburst also
acquired from Old Vector a wholly owned subsidiary of Old Vector, Vector
Exploration, Inc., a Texas Corporation ("Vector Exploration"), which then
became a wholly owned subsidiary of Sunburst. Old Vector assigned its rights
to the asset purchase agreement with Lisbon to Vector Exploration prior to
Sunburst's acquisition of Old Vector. In exchange for these assets and the
rights under the asset purchase agreements, Old Vector received 100,000 shares
of Common Stock.
The Company, through its newly acquired wholly owned subsidiary Vector
Exploration, exercised the rights under the asset purchase agreement with
Lisbon by which Vector Exploration acquired 13 oil and gas wells located in
East Texas and North Louisiana. These assets are currently held in the
Company's wholly owned subsidiary Vector Exploration. In exchange for these
assets, Vector Exploration delivered to Lisbon 30,000 shares of the Company's
class AA 6% cumulative convertible preferred stock ("Class AA Preferred Stock")
and assumed $6.1 million in secured debt and $800,000 in accounts payable. The
secured debt assumed by the Company is a credit facility secured by the
production on the acquired producing properties that allows the Company access
to a line of credit of up to $10 million with a national bank. These
liabilities, just as the assets, are held by the Company's wholly owned
subsidiary Vector Exploration. The Class AA Preferred Stock is convertible
into Common Stock and votes at a rate of 100 for each share of Class AA
Preferred Stock.
The Company also exercised its rights under the asset purchase agreement
with Taurus which were assigned directly to the Company, and acquired the East
Westbrook Properties located in Mitchell County, Texas. In exchange for this
asset, the Company issued to Taurus 213,120 shares of Common Stock.
In connection with the above transaction, the Company additionally issued
2,480,000 shares of Common Stock, a warrant to purchase an additional 300,000
shares of Common Stock at $.10 per share, and 500,000 shares of the Company's
class B preferred stock ("Class B Preferred Stock") to subscribers in exchange
for an aggregate consideration of $503,000. The Class B Preferred Stock is not
convertible, but has 100 votes for every share of Class B Preferred.
Vector Energy Corporation and its wholly owned subsidiary, Vector
Exploration, Inc., are primarily engaged in the exploration, production,
acquisition and development of oil and gas properties. These operations are
conducted in the United States.
Competitive Conditions
The exploration, development and production of oil and gas is subject to
intense competition. The principal methods of competition in the industry for
the acquisition of oil and gas leases and producing properties are the payment
of cash bonus payments at the time of acquisition of leases, delay rentals,
location damage supplement payments, and stipulations requiring exploration and
production commitments by the lessee. Producing properties are frequently
offered for sale through an open competitive bidding process. Companies with
greater financial resources, existing staff and labor forces, equipment for
exploration, and vast experience are in a better position than the Company to
compete for such leases and producing properties. In addition, the ability of
the Company to market any oil and gas which it might produce could be severely
<PAGE>
limited by its inability to compete with larger companies operating in the same
area, which may be drilling or able to offer any oil and gas produced at a
price lower than that of the Company.
The availability of a ready market for oil and gas depends upon numerous
factors beyond the Company's control, including the extent of domestic
production and imports of oil and gas, proximity and capacity of pipelines, and
the effect of federal and state regulation of oil and gas sales, as well as
environmental restrictions on the exploration and usage of oil and gas
prospects which will become even more intense in the future. The Company has a
minimal competitive position in the oil and gas industry.
Raw materials requisite to the transaction of the Company's business
include such items as drilling rigs and other equipment, casing pipe, drilling
mud and other supplies. Such items are commonly available from a number of
sources and the Company foresees no shortage or difficulty in acquiring any raw
materials relevant to the conduct of its business.
Dependence upon one or a few major customers
The Company currently markets the oil and gas production from its operated
properties to six customers, each of which represents sales in excess of 10% of
the Company's total oil and gas revenues. The availability of oil and gas
purchasers is such, however, that any customer discontinuing purchases from the
Company could almost assuredly be replaced by another buyer.
Governmental and Environmental Regulations
Governmental Regulations
Domestic development, production and sale of oil and gas are extensively
regulated at both the federal and state levels. Legislation affecting the oil
and gas industry is under constant review for amendment or expansion,
frequently increasing the regulatory burden. Also, numerous departments and
agencies, both federal and state, have issued rules and regulations binding on
the oil and gas industry and its individual members, compliance with which is
often difficult and costly and some of which carry substantial penalties for
failure to comply. State statutes and regulations require permits for drilling
operations, drilling bonds and reports concerning wells. Texas and other
states in which the Company conducts operations also have statutes and
regulations governing conservation matters, including the unitization or
pooling of oil and gas properties and establishment of maximum rates of
production from oil and gas wells.
Environmental Regulations
The Company's operations are subject to extensive and developing federal,
state and local laws and regulations relating to environmental, health and
safety matters; petroleum; chemical products and materials; and waste
management. Permits, registrations or other authorizations are required for
the operation of certain of the Company's facilities and for its oil and gas
exploration and production activities. These permits, registrations or
authorizations are subject to revocation, modification and renewal.
Governmental authorities have the power to enforce compliance with these
regulatory requirements, the provisions of required permits, registrations or
other authorizations, and lease conditions, and violators are subject to civil
and criminal penalties, including fines, injunctions or both. Failure to
obtain or maintain a required permit may also result in the imposition of civil
and criminal penalties. Third parties may have the right to sue to enforce
compliance.
<PAGE>
Some risk of costs and liabilities related to environmental, health and
safety matters is inherent in the Company's operations, as it is with other
companies engaged in similar businesses, and there can be no assurance that
material costs or liabilities will not be incurred. In addition, it is
possible that future developments, such as stricter requirements of
environmental or health and safety laws and regulations affecting the Company's
business or more stringent interpretations of, or enforcement policies with
respect to, such laws and regulations, could adversely affect the Company. To
meet changing permitting and operational standards, the Company may be
required, over time, to make site or operational modifications at the Company's
facilities, some of which might be significant and could involve substantial
expenditures. There can be no assurance that material costs or liabilities
will not arise from these or additional environmental matters that may be
discovered or otherwise may arise from future requirements of law.
Employees and Consultants
On April 30, 1998, the Company was a development stage company and had no
employees. Concurrent with the consummation of the asset acquisition
transaction with Old Vector, the Company added four full time employees. The
Company may hire additional personnel as required by its operations and may
also engage the services of geological and engineering consultants from time to
time to assist in its operations.
Item 2. Property
Prior to the consummation of the asset acquisition transaction with Old
Vector, the Company had no operations, and accordingly, did not maintain an
office or any facilities. As a result of the asset acquisition transaction,
the Company acquired interests in several oil and gas properties in the
continental United States.
Properties Acquired
Lisbon Properties
The Company acquired the Lisbon Properties on May 8, 1998, through its
wholly owned subsidiary Vector Exploration, Inc. The properties consist of oil
and gas working interests, ranging from approximately 50% to 100%, in thirteen
wells and leases in eight fields located in Gregg and Harrison Counties, Texas
and Claiborne, Lincoln, Webster and Bossier Parishes, Louisiana. The primary
target zones consist of the Cotton Valley, Travis Peak, Petit, Gray Sand,
Haynesville, Burgess Simmons, Vaughn and Hall formations. The Company
currently operates ten of thirteen wells, and is negotiating to take over the
operation of one additional well. Currently there are eleven wells producing
on the properties. The Company is in the process of recompleting one well
which was not producing, and expects to begin production shortly. The aggregate
amount of daily production equals approximately 3,000 MMcfd (net) of natural
gas and 150 BOD (net) of oil and condensate. The Company believes that these
fields in East Texas and North Louisiana provide an opportunity for continued
growth and have significant remaining undeveloped reserve potential.
East Westbrook Properties
The Company acquired the East Westbrook Properties on May 8, 1998. The
properties consist of approximately a 63% working interest in 980 acres in
Mitchell County, Texas that were formerly part of the East Westbrook Unit. The
East Westbrook Unit encompasses approximately 1,200 acres and is part of the
Westbrook Field which encompasses over 18,000 acres and has produced in excess
of 99.1 million barrels of oil since its discovery in 1920. The East Westbrook
Unit is located on the northeast corner of the Midland Basin Platform and on
the west flank of the Eastern Shelf. The East Westbrook Unit is bordered on
<PAGE>
the west, south, and north by waterflood projects. All of these waterfloods
have been infill drilled and have produced large volumes of oil. Twenty wells
have been completed on the properties, five of which have recent production.
The Company operates all of the wells on this property. Historically the East
Westbrook Unit has been poorly managed and was placed in the hands of a
promoter who went into bankruptcy. The wells were not properly maintained, no
water was injected and the facility was allowed to deteriorate. Taurus
acquired the property and spent nearly $1 million putting the wells back on
line, cleaning out the wells, and replacing worn equipment. In addition, the
Company is currently in the process of performing workovers on two of the
wells, and expects to begin production shortly. In order to complete the work
that needs to be done, Vector estimates that an additional $1.6 million needs
to be spent. The Company is currently negotiating to acquire additional
working interests in the properties, and expects to ultimately own in excess of
90% of the working interest.
Old Vector Properties
The Company acquired the Old Vector Properties on May 8, 1998. The
properties consist of non-operated working and royalty interests in
approximately eighty wells and units located primarily in Oklahoma and Kansas.
The most significant property holdings are focused in the south central,
central, and northwestern regions of Oklahoma within well established producing
oil and gas fields, and in a waterflood project located in Kingman County,
Kansas. Because of the Company's small interest in any particular well or
unit, the Company has little or no influence over the operation of the
properties or their further development.
New Properties
The Company continues to pursue the evaluation of a number of oil and gas
properties. During their respective careers, management has made numerous
contacts in the oil and gas industry and has accumulated knowledge concerning
location, current ownership, and other information with respect to properties.
Based on this experience and knowledge, management believes that the Company
will be able to continue to acquire properties. However, additional financing
will be required to pursue particular properties.
The Company's primary emphasis has been directed toward oil and gas
properties located in the continental United States, however, other properties
are currently being evaluated.
Production Information
The table below sets forth the net quantities of oil and gas production
(net of all royalties, overriding royalties, and production due to others), the
average sales prices, and the average production costs attributable to the
properties acquired by the Company for the years ended December 31, 1997 and
1996.
1997 1996
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Net Production
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Oil (BBLS) 19,832 12,537
Gas (MCF) 391,130 39,932
Average Sales Prices
--------------------
Oil (per BBL) $ 19.12 $ 16.50
Gas (per MCF) $ 2.59 $ 2.41
Average Production Cost (1)
Per Equivalent MCF of Gas (2) $ 1.27 $ 1.25
<PAGE>
(1) Production costs include lease operating expenses, severance taxes,
transportation, treatment, marketing, and other direct expenses
(2) Oil production is converted to MCF using its estimated energy equivalent
of six MCF per BBL
Reserve Information
Oil and gas reserve information for the properties acquired by the Company
has been prepared by T.J. Smith & Company, Inc., an independent engineering
company, with respect to the Lisbon Properties, by Eram Ali, an independent
petroleum engineer, with respect to the Westbrook property and internally by
the Company with respect to the Old Vector Properties.
RESERVE CALCULATIONS BY PETROLEUM ENGINEERS INVOLVE THE ESTIMATION OF
FUTURE NET RECOVERABLE RESERVES OF OIL AND GAS AND THE TIMING AND AMOUNT OF
FUTURE NET REVENUES TO BE RECEIVED THEREFROM. THOSE ESTIMATES ARE BASED ON
NUMEROUS FACTORS, MANY OF WHICH ARE VARIABLE AND UNCERTAIN. RESERVE ESTIMATORS
ARE REQUIRED TO MAKE NUMEROUS JUDGEMENTS BASED UPON PROFESSIONAL TRAINING,
EXPERIENCE, AND EDUCATIONAL BACKGROUND. THE EXTENT AND SIGNIFICANCE OF THE
JUDGEMENTS IN THEMSELVES ARE SUFFICIENT TO RENDER RESERVE ESTIMATES INHERENTLY
IMPRECISE. SINCE RESERVE DETERMINATIONS INVOLVE ESTIMATES OF FUTURE EVENTS,
ACTUAL PRODUCTION, REVENUES AND OPERATING EXPENSES MAY NOT OCCUR AS ESTIMATED.
ACCORDINGLY, IT IS COMMON FOR THE ACTUAL PRODUCTION AND REVENUES LATER RECEIVED
TO VARY FROM EARLIER ESTIMATES. ESTIMATES MADE IN THE FIRST FEW YEARS OF
PRODUCTION FROM A PROPERTY ARE GENERALLY NOT AS RELIABLE AS LATER ESTIMATES
BASED ON LONGER PRODUCTION HISTORY. RESERVE ESTIMATES BASED UPON VOLUMETRIC
ANALYSIS ARE INHERENTLY LESS RELIABLE THAN THOSE BASED ON LENGTHY PRODUCTION
HISTORY. ALSO, POTENTIALLY PRODUCTIVE GAS WELLS MAY NOT GENERATE REVENUE
IMMEDIATELY DUE TO LACK OF PIPELINE CONNECTIONS AND POTENTIAL DEVELOPMENT WELLS
MAY HAVE TO BE ABANDONED DUE TO UNSUCCESSFUL COMPLETION TECHNIQUES. HENCE,
RESERVE ESTIMATES MAY VARY FROM YEAR TO YEAR.
Proved oil and gas reserves are the estimated quantities of crude oil,
condensate, natural gas, and natural gas liquids which geological and
engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions.
Proved developed oil and gas reserves are those reserves expected to be
recovered through existing wells with existing equipment and operating methods.
The tables below set forth the estimated proved and proved developed
reserves of crude oil (including condensate) and natural gas, all of which are
located within the continental United States, associated with the properties
acquired by the Company for the years ended December 31, 1997 and 1996.
Proved Reserves at Year End
Developed Undeveloped Total
--------- ----------- -----
Oil (BBLs)(in thousands)
-----------------------
December 31, 1996 242 199 441
December 31, 1997 345 257 602
<PAGE>
Developed Undeveloped Total
--------- ----------- -----
Gas (MCF)(in thousands)
-----------------------
December 31, 1996 1,774 0 1,774
December 31, 1997 7,450 5,147 12,597
Changes in Proved Reserves
BBLS MCF
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Estimated Quantity, December 31, 1995 39 -
Production - (40)
Acquisitions 369 -
Discoveries 33 1,814
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Estimated Quantity, December 31, 1996 441 1,774
Production (11) (391)
Acquisitions - -
Discoveries 172 11,214
-----------------
Estimated Quantity, December 31, 1997 602 12,597
=================
Oil and Gas Wells
As a result of the asset acquisition transaction, the Company owns
interests in productive oil and gas wells (including producing wells and wells
capable of production), as follows:
Gross (1) Net
Wells Wells
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Oil Wells 78 7.52
Gas Wells 41 6.08
-----------------------
Total 119 13.60
=======================
(1) One or more completions in the same well are counted as one well
Oil and gas leaseholds
The table below sets forth the Company's ownership interest in leaseholds
acquired as a result of the asset acquisition transaction. The oil and gas
leases in which the Company has an interest are generally held by production.
The leases may be surrendered by the Company at any time by the cessation of
production.
Developed (1) Developed (1) Undeveloped Undeveloped
Gross Acres Net Acres Gross Acres Net Acres
----------- --------- ----------- ---------
Louisiana 3,573 1,387 12,570 8,061
Texas 4,907 1,155 1,500 1,088
Kansas 4,037 52 0 0
Oklahoma 14,135 707 200 100
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Total 26,652 3,301 14,270 9,249
===========================================================
(1) Acres spaced or assigned to productive wells
<PAGE>
Office Facilities
The Company's Houston, Texas office consists of approximately 1,879 square
feet and has been leased from an unaffiliated third party for $2,283 per month.
Such lease expires on July 31, 2000.
Item 3. Legal Proceedings
The Company is involved from time to time in various claims, lawsuits and
administrative proceedings incidental to its business. In the opinion of
management, the ultimate liability thereunder, if any, will not have a
materially adverse effect on the financial condition or results of operations
of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
On June 19, 1998, the Company held a Special Meeting of the Shareholders
at which the following proposals were approved:
(1) To change in the Company's state of incorporation from Colorado to Texas
by means of a merger of the Company into Vector Energy Corporation, a
newly organized Texas corporation wholly owned by the Company ("Vector"),
under which Vector was the surviving corporation.
(2) To exchange of shares of Sunburst for shares of Vector whereby the holders
of Common Stock in Sunburst received one share of common stock in Vector
for every 3.3333 shares of common stock in Sunburst and holders of
preferred stock in Sunburst received one share of preferred stock in
Vector for every one share of preferred stock in Sunburst. The name of
the surviving company is Vector Energy Corporation.
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
On June 29, 1998, the Company began trading its common stock on the NASDAQ
OTC Electronic Bulletin Board under the symbol VECT. The following table
shows, for the period indicated, the high and low closing bid prices of the
Company common stock as reported by NASDAQ. Any market for the common stock
should be considered sporadic, illiquid and highly volatile. Prices reflect
inter-dealer quotations, without adjustment for retail markup, markdowns or
commissions, and may not represent actual transactions.
The stock's trading range since listing on NASDAQ is as follows:
High Low
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1999 Fiscal Year
----------------
1st Quarter 1 3/4 1 1/4
(Since commencement on
June 29, 1998)
2nd Quarter 1 3/4 1 11/16
(Through August 11, 1998)
As of August 10, 1998, there were approximately 134 holders of record of
the Company's common stock. The Company has not paid any dividends on its
common stock and no dividends are anticipated in the foreseeable future. In
addition, the ability of the Company to declare or pay dividends on its common
stock is currently subject to certain restrictions contained in its credit
facility with a bank.
Item 6. Management's Discussion and Analysis or Plan of Operation
The following discussion should be read in conjunction with the financial
statements and notes thereto included elsewhere herein.
General
On May 8, 1998, the Company entered into an asset acquisition transaction
in which it acquired substantially all of its present operating assets. Prior
to this time the Company was a development stage company and had no employees
or operations.
In exchange for its operating assets, Company issued 313,120 shares of
common stock, 30,000 shares of the Company's class AA 6% cumulative convertible
preferred stock and assumed $6.1 million in secured debt and $800,000 in net
accounts payable. The secured debt assumed by the Company is a credit facility
secured by the production on the acquired producing properties that allows the
Company access to a line of credit of up to $10 million with a national bank.
In connection with the above transaction, the Company additionally issued
2,480,000 shares of common stock, a warrant to purchase an additional 300,000
shares of common stock at $.10 per share, and 500,000 shares of the Company's
class B preferred stock to subscribers in exchange for an aggregate
consideration of $503,000.
<PAGE>
Liquidity and Capital Resources
The secured debt assumed by the Company is a $10,000,000 revolving credit
note which terminates on March 15, 2001. Interest on the note is payable
monthly at a floating rate which is currently 8.6875%. The borrowing base
under the note is determined periodically based upon the collateral value
assigned to the mortgaged properties, and is currently $6,100.000. Principal
payments are currently scheduled at $75,000 per month beginning September 15,
1998 and increasing to $125,000 per month beginning February 15, 1999. In
addition, the note places certain restrictions on the use of the revenues from
the mortgaged properties, requires the Company to satisfy the net accounts
payable assumed by September 15, 1998 and requires the expenditure of $325,000
on the development of the mortgaged properties by November 4, 1998. The
Company does not anticipate that the borrowing base under the note can be
increased without incurring development costs which are significantly greater
than those required under the terms of the note.
Currently, the Company's oil and gas revenues are sufficient to satisfy
its oil and gas operating expenses and interest payments. The Company's
general and administrative expenses and development costs are being funded
primarily from the proceeds from the sale of stock. The Company believes that
the planned development of its properties will result in an increase in oil and
gas revenues which will be sufficient to its meet operating, general and
administrative, interest and debt service requirements. However, there can be
no assurance that this will occur. It is anticipated that an additional
$1,500,000 in equity funding will be required to meet the current needs of the
Company. Any inability of the Company to raise additional capital will limit
the development of most of its oil and gas properties and may prevent the
Company from meeting its cash requirements.
The Company is currently negotiating with many of the vendors for which
accounts payable were assumed in the asset acquisition transaction, and
believes that a significant portion of these payables can be satisfied through
the issuance of common stock. If the Company is unsuccessful in these
negotiations, additional equity funding may be needed in order to comply with
the terms of the revolving credit note.
The Company is aggressively seeking additional property acquisitions with
near term revenue generating capability and future development potential. The
Company is currently evaluating several potential acquisitions which would
utilize a combination of the issuance of its equity securities and additional
equity and debt financing.
Item 7. Financial Statements Annual Financial Statements
The Report of the Independent Certified Public Accountants appearing at
page F-1 and the Financial Statements and Notes to Financial Statements
appearing at pages F-2 through F-9 hereof are incorporated herein by reference.
Financial Statements of Businesses Acquired
The financial statements appearing under Item 7 set forth in the Company's
Form 8-K/A, filed on July 27, 1998, are incorporated herein by reference.
Pro Forma Financial Data
The following unaudited pro forma condensed financial information has been
prepared by management utilizing the audited financial statements of the
Company through April 30, 1998 and the audited statements of revenue and direct
expenses of the assets acquired from Lisbon Development Company, L.L.C., Taurus
Operating, Inc. and Vector Energy Corporation through December 31, 1997.
Adjustments have been made to reflect the impact of purchase accounting and
other items had the acquisitions taken place on May 1, 1997 with respect to
operating data and April 30, 1998 respect to balance sheet data. The pro forma
adjustments are described in the accompanying notes and are based upon
preliminary estimates and certain assumptions that management of the
Company believes reasonable under the circumstances.
<PAGE>
The unaudited pro forma condensed financial information is for comparative
purposes only and does not purport to be indicative of the results which would
actually have been obtained had the acquisitions been effected on the pro forma
dates, or of the results which may be obtained in the future. The unaudited
pro forma condensed financial information in the opinion of management reflect
all adjustments necessary to present fairly the data for such periods.
The unaudited pro forma condensed financial information should be read in
conjunction with the audited historical financial statements appearing
elsewhere in this Form 10-KSB or incorporated herein by reference.
Vector Energy Corporation
Unaudited Pro Forma
Condensed Balance Sheet
Audited Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
Current Assets 2,020 503,000 505,020
Oil and Gas Properties, Net 0 10,840,000 (1)(2)(3) 10,840,000
Other Assets 240 240
Total Assets 2,260 11,343,000 11,345,260
Current Liabilities 721 800,000 (1) 800,721
Note Payable 0 6,100,000 (1) 6,100,000
Common Stock 2,220 1,451,000 (2)(3)(4)(5) 1,453,220
Preferred Stock 8,000 2,992,000 (1)(4)(5) 3,000,000
Additional Paid in Capital 600 600
Retained Earnings (9,281) (9,281)
Total Stockholders' Equity 1,539 4,443,000 4,444,539
Total Liabilities and Equity 2,260 11,343,000 11,345,260
Vector Energy Corporation Unaudited Pro Forma
Condensed Statements
of Earnings Pro
Forma
Company Acquisitions Adjust-
Historical Historical ments Pro Forma
---------- ---------- ------- ---------
Revenues 0 1,518,015 1,518,015
Direct Operating Expense 0 649,879 649,879
General and Administrative 4,850 0 670,000 (7) 674,850
Interest Expense 0 0 530,000 530,000
Depletion 0 0 300,000 300,000
Total Expenses 4,850 649,879 1,500,000 2,154,729
Net Income (Loss) (4,850) 868,136 (1,500,000) (636,714)
(1) To reflect the purchase price adjustments related to the acquisition of
the Lisbon Properties. The purchase price is the sum of $3,000,000 in
class AA 6% cumulative convertible preferred stock, the assumption of
$6,100,000 in debt, and the assumption of $800,000 in net accounts
payable.
(2) To reflect the purchase price adjustment related to the acquisition of the
Westbrook Properties which consists of $640,000 in common stock.
(3) To reflect the purchase price adjustments related to the Old Vector
Properties which consists of $300,000 in common stock.
(4) To reflect the issuance of 2,480,000 shares of common stock and 500,000
shares of class B preferred stock in exchange for $503,000.
(5) To reflect the conversion of 80,000 shares of series A convertible
preferred stock into 160,000 shares of common stock.
(6) To record interest expense in the amount of $530,000 relating to the debt
assumed.
(7) To record depletion expense in the amount of $300,000 relating to the oil
and gas properties acquired.
(8) To record general and administrative expense estimated to be $670,000.
<PAGE>
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure None
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act
The Directors and Executive Officers of the Company are as follows:
Name Age Position Tenure
---- --- -------- ------
Samuel M. Skipper 39 Director May 8, 1998
Chairman of the Board
Chief Executive Officer
Stephen F. Noser 52 Director May 8, 1998
President
Secretary
Assistant Treasurer
Gary R. Countryman 60 Chief Operating Officer May 8, 1998
Vice President
Assistant Secretary
Randal B. McDonald, Jr. 41 Chief Financial Officer May 8, 1998
Treasurer
Assistant Secretary
Michael R. Quinn 74 Former Director Inception to
Former President May 8, 1998
Jay Lutsky 55 Former Director Inception to
Former Secretary/Treasurer May 8, 1998
John Marvin 48 Former Director Inception to
Former Vice President May 8, 1998
Effective May 8, 1998, in connection with the asset acquisition
transaction, all of the directors and executive officers of Sunburst resigned.
All Directors of the Company will hold office until the next annual
meeting of shareholders. The Executive Officers of the Company, who are
appointed by the Board of Directors, hold office until their successors are
chosen and qualified, or until their death, resignation or removal. The
Company presently has no audit, nominating or executive committee or committees
performing substantially similar functions. There are no family relationships
among the Directors and Officers of the Company. The Company currently has no
employment agreement with any of the Officers or Directors.
Sam Skipper, CEO/Chairman. Since 1990, Mr. Skipper has assisted in the
consolidation of private and public companies and the entry of such companies
into the public markets. From 1996 until the present, Mr. Skipper has been
Managing Director of Metropolitan Capital, a boutique investment banking firm
specializing in the marketing and financing of small public companies. From 1995
to 1996, Mr. Skipper served as CEO/President of Basic Natural Resources,
an oil and gas company which later merged into Synaptix. In 1992, he was the
founder, CEO, President and Chairman of ImageTrust, Inc., a public company
which was in the diagnostic health care business. In 1990, he served as Founder
and Vice President of Corporate Development of Diagnostic Health Corporation
(DHC) where he assisted the company in the identification and closing of
several acquisitions until DHC's acquisition by HealthSouth Corporation in
1994.
Stephen Noser, President. Mr. Noser has been President or Managing
Director of Vector Energy since 1991. Prior to that time, he served in various
management and legal capacities within the oil and gas industry. He was Vice
President and General Counsel of MCO Resources, Inc. ($60 million is assets and
listed on the American Stock Exchange) from 1987 to 1988. He was Associate
General Counsel and then General Counsel of Inexco Oil Company ($500 million in
assets and listed on the New York Stock Exchange) from 1983 to 1986. He also
served on Inexco's Board of Directors and as a member of the company's
operating committee. Both at Inexco and MCO, Mr. Noser had primary
responsibility for all SEC reporting requirements and preparation of all
registration statements. From 1977 to 1983, he served in various legal
capacities within the American Natural Resources System. From 1974 to 1977, he
served as an attorney for Mitchell Energy & Development Corp. Mr. Noser holds
a B.A. from the University of St. Thomas and a J.D. degree from the University
of Houston. He is a member of the Texas and Houston Bar Associations.
<PAGE>
Randal McDonald, Chief Financial Officer. Mr. McDonald has nineteen years
experience in the field of public accounting. Since 1993, he has provided
general financial consulting and litigation support services to a variety of
companies. Such services have included preparation and review of public and
private offering documents, preparation of pro forma financial statements
utilized in raising capital, and services as interim chief financial officer.
From 1979 to 1985, he was with KPMG Peat Marwick's Houston office, specializing
in public oil and gas companies. During 1986, he served a one year rotational
assignment in KPMG Peat Marwick's world headquarters developing their audit
software. During 1987, he served as Chief Financial Officer for IBS
Technologies, Ltd., a publicly traded computer software company. From 1988 to
1992, he was with Arthur Andersen's Denver office, specializing in public oil
and gas companies. Mr. McDonald holds a B.B.A. in accounting from the
University of Texas at Austin and is a licensed CPA in Texas and Colorado.
Gary Countryman, Vice President-Chief Operating Officer. Mr. Countryman
has been a consulting petroleum engineer since 1987. Since 1996, he has
devoted substantial time to the activities of Vector Energy. Prior to 1987,
Mr. Countryman served in a variety of capacities for Conoco, Inc. From 1984 to
1986, he was the Managing Director in charge of Conoco's operations in Egypt
where he managed a $200 million annual budget and set the organization in place
to develop one billion barrels of reserves. From 1980 to 1984, he was Manager
of Operations. From 1978 to 1980, he served as Manager of Conoco's operations
in Dubai. From 1975 to 1977, he served as Division Manager in Midland, Texas.
From 1971 to 1976, he served as assistant division manager in Oklahoma City.
From 1961 to 1976, he served in Conoco's research and development department
with special emphasis on water flood operations. Mr. Countryman holds an M.S.
in Management from the Massachusetts Institute of Technology, and an M.S. and
B.S. in Petroleum Engineering from the University of California at Berkeley.
He is a member of Phi Beta Kappa, the American Petroleum Institute and the
Society of Petroleum Engineers.
Jay Lutsky. Mr. Lutsky has served as Secretary and as a Director of the
Company from its inception until May 8, 1998. From 1968 to 1974, Mr. Lutsky
was employed at United Bank of Denver in various management positions,
including Guaranteed Check Manager, Corporate Programs Manager and Executive
Lending Officer. From April 1974 through April 1980, Mr. Lutsky was involved
in the publishing and ski promotions business, serving as President of Mountain
States Ski Association, a company he helped to start. From August 1983 through
September 1985, Mr. Lutsky worked in the positions of General Manager of the
SumFun Program, Regional Marketing Manager, and Investor Relations Manager for
Gold C Enterprises, Inc., a publicly-traded Colorado corporation that published
discount coupon books. Since May of 1980, Mr. Lutsky has done business as
Dolphin & Associates, a private consulting firm and he has managed his personal
investment portfolio.
Mr. Lutsky has served on the board and been president of several public
companies. From December 1986 through May 1990, Mr. Lutsky served as
president of Eagle Venture Acquisitions, Inc. ("Eagle"). Eagle merged with
Network Financial Services, Inc. ("Network") in May 1990. Mr. Lutsky continued
on the board of Network which traded on the NASDAQ system until December 1993.
Mr. Lutsky was a vice-president and served on the board of Starlight
Acquisitions, Inc. ("Starlight") a blank check offering. Starlight merged with
Toucan Gold Corporation ("Toucan"), TUGO- Bulletin Board, on May 10, 1996. Mr.
Lutsky now serves as an advisor to the current board of directors of Toucan.
Mr. Lutsky also currently serves on the board of directors of Gatwick, Ltd., a
Regulation A public company.
He earned a Bachelor of Science degree from Kent State University in 1967.
Michael R. Quinn. Mr. Quinn has served as President and Director of the
Company from its inception until May 8, 1998. He has been involved with
several development stage companies. He consults with companies contemplating
trading publicly and his services consist of corporate structuring, management,
accounting, productions, sales, etc.
Over the last six years, Mr. Quinn has served as a consultant to equity
holders involved in a bankruptcy case, as a consultant and lead plaintiff in
three lawsuits, all of which have resulted in favorable decisions for the
plaintiff.
<PAGE>
He served as President, Treasurer and Director of O.T.C. Capital
Corporation ("OTC"). OTC acquired Capital 2000 and is currently actively
trading. He was a founder of American Leverage, Inc., and was its
Secretary/Treasurer and a Director until American Leverage, Inc. acquired Data
National Corporation ("Data"). Data is active, profitable and in a growth
mode. Currently, Mr. Quinn is the President and Treasurer of Gatwick, Ltd.
("Gatwick").
John B. Marvin. Mr. Marvin served as Vice President and Director of
Starwood Investments, Inc., a Colorado corporation involved in entrepreneurial
activities in real estate, oil and gas, and small business, from April 1986 to
February 1991. Mr. Marvin also served as Vice President and a Director of
Universal Treating Company, Inc., an oil well service company in Levelland,
Texas, from October 1987 to November 1992. He is currently self-employed as
a consultant providing oil and gas drilling and engineering services in the
oil and gas industry.
Mr. Marvin served on the board of directors of Starwood Acquisitions, Inc.
from July 1988 to May 17, 1989. Starwood Acquisitions, Inc. merged with
Cine-Source, Inc. a film production and distribution company. Mr. Marvin also
served as a director of Starlight Acquisitions, Inc. from January 1989 to May
10, 1996. Starlight Acquisitions merged with Toucan Gold Company, symbol TUGO,
which trades on the bulletin board.
Mr. Marvin received his Bachelor of Science degree in Engineering from the
U.S. Military Academy at West Point in 1972. He received his MBA in Finance
from the University of Utah in 1976.
Item 10. Executive Compensation
At the inception of the Company, two of the former Directors of the
Company received 218,252 shares of common stock, and the third former Director
received 58,501 shares of common stock valued at $.003 per share which were
issued for services rendered to the Company and for agreeing to be a Director.
Effective May 8, 1998, each of the four current Executive Officers of the
Company began drawing a salary equal to $72,000 per year.
At the present time, the Company has no retirement, pension or profit
sharing programs for the benefit of its Directors or employees. However, at
its discretion, the Company may adopt one or more of such programs in the
future.
Pursuant to its bylaws and the Texas Business Corporation Act, the Company
shall indemnify each Director and Officer against expenses, judgements, fines,
and amounts paid in settlement actually and reasonably incurred by him in
connection with any action, suit or proceeding which he may be made a party by
reason of his being or having been made a Director or Officer of the Company,
unless he failed to meet certain standards of conduct.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding beneficial
ownership of outstanding shares as of August 10, 1998 by each person who is
known by the Company to own beneficially five percent or more of the
outstanding shares, the Company's Directors and Executive Officers, and all
Directors and Executive Officers as a group.
<PAGE>
Amount and
Nature Of
Name and Address Beneficial % of
Of Beneficial Owner Title of Class Position or Title Ownership Class
- ------------------- -------------- ----------------- --------- -----
Samuel M. Skipper Common Stock Director 1,630,017 45.9%
5599 San Felipe Chairman of the Board
Suite 620, Houston, Class B CEO 250,000 50.0%
Texas, 77056 Preferred Stock
Stephen F. Noser Common Stock Director (1)350,003 9.9%
5599 San Felipe President
Suite 620, Houston, Class B Secretary 250,000 50.0%
Texas, 77056 Preferred Stock Assistant Treasurer
Gary R. Countryman Common Stock COO 300,003 8.5%
5599 San Felipe Vice President
Suite 620, Houston, Assistant Secretary
Texas, 77056
Randal B. McDonald,Jr. Common Stock CFO 0 0.0%
5599 San Felipe Treasurer
Suite 620, Houston Assistant Secretary
Texas, 77056
Lisbon Development Class AA 6% N/A 29,400 98.0%
Company, L.L.C. Cumulative
1330 Post Oak Blvd. Convertible
Suite 2222, Houston Preferred
Texas, 77056 Stock
All Officers Common Stock N/A (1)2,280,023 64.2%
And Directors Class B 500,000 100.0%
Preferred
Stock
(1) Includes 50,000 shares of common stock indirectly owned by Mr. Noser
because of his 50% ownership in Old Vector Corporation, which owns
100,000 shares of common stock.
Item 12. Certain Relationships and Related Transactions
Item 13. Exhibits and Reports on Form 8-K
Exhibits not incorporated herein by reference to a prior filing
are designated by an asterisk (*) and are filed herewith.
Exhibit 2.01 Asset Purchase Agreement between Registrant and Vector
Exhibit 2.02 Lisbon Agreement
Exhibit 2.03 Taurus Agreement
Exhibit 2.04 Agreement and Plan of Merger Between Sunburst Acquisitions
II, Inc. and Vector Energy Corporation
Exhibit 3.01 Articles of Incorporation of Vector Energy Corporation
Exhibit 3.02 By-Laws of Vector Energy Corporation
Exhibit 4.01 Certificate of Designation, Preferences, Rights and
Limitations of Class AA 6% Cumulative Convertible
Preferred Stock and Class B Preferred Stock of Vector
Energy Corporation
Exhibit 21 Subsidiaries of the Registrant*
Exhibit 27 Financial Data Schedule*
Exhibit 99 Audited financial statements of Vector Energy Corporation
as of April 30, 1998.*
No reports were filed on Form 8-K during the Company's fourth fiscal
quarter ended April 30, 1998.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
VECTOR ENERGY CORPORATION
(Registrant)
By /S/ Randal B. McDonald, Jr.
-----------------------------
Randal B. McDonald, Jr.
Chief Financial Officer
Principal Financial and Accounting Officer
Date: August 13, 1998
<PAGE>
Exhibit 99
Vector Energy Corporation
FKA Sunburst Acquisitions II, Inc.
FINANCIAL STATEMENTS
April 30, 1998
<PAGE>
CONTENTS
Page
Report of Independent Certified Public Accountant F-1
Balance Sheet F-2
Statements of Loss and Accumulated Deficit F-3
Statements of Cash Flows F-4
Notes to Financial Statements F-5 - F-9
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
The Board of Directors and Stockholder of
Vector Energy Corporation
FKA Sunburst Acquisitions II, Inc.
We have audited the accompanying balance sheet of Vector Energy Corporation
(FKA Sunburst Acquisitions II, Inc.) as of April 30, 1998, and the related
statements of loss and accumulated deficit, cash flows, and stockholders'
equity for the year ended April 30, 1998, the initial period ended April 30,
1997, and for the period from inception (March 24, 1997) to April 30, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Vector Energy Corporation (FKA
Sunburst Acquisitions II, Inc.) as of April 30, 1998, and the results of its
operations and its cash flows for the year ended April 30, 1998, the initial
period ended April 30, 1997, and for the period from inception (March 24, 1997)
to April 30, 1998, in conformity with generally accepted accounting principles.
Denver, Colorado
August 4, 1998
COMISKEY & COMPANY
PROFESSIONAL CORPORATION
F-1
<PAGE>
Vector Energy Corporation
FKA Sunburst Acquisitions II, Inc.
BALANCE SHEET
April 30, 1998
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,020
---------
TOTAL CURRENT ASSETS $ 2,020
OTHER ASSETS:
Organizational costs (net
of amortization) 240
--------
TOTAL ASSETS 2,260
$ ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - related party $ 721
---------
TOTAL CURRENT LIABILITIES 721
STOCKHOLDERS' EQUITY
Preferred stock, no par value
20,000,000 shares authorized;
80,000 shares issued and outstanding 8,000
Common stock, no par value;
100,000,000 shares authorized;
2,030,000 shares issued and
outstanding 2,220
Additional paid-in capital 600
Deficit accumulated
during the
development stage (9,281)
--------
1,539
--------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY 2,260
$ ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
Vector Energy Corporation
FKA Sunburst Acquisitions II, Inc.
STATEMENTS OF LOSS AND ACCUMULATED DEFICIT
For the period from inception (March 24, 1997) to April 30, 1998
<TABLE>
<S> <C> <C> <C>
For the period
from inception
(March 24 For the For the
1997) to year ended year ended
April 30, 1998 April 30, 1997 April 30, 1998
---------------- ---------------- ----------------
REVENUES $ - $ - $ -
---------------- ---------------- ----------------
EXPENSES
Amortization expense 60 - 60
Legal and accounting - 5,363 2,473 2,890
Office expense 818 23 795
Rent expense 600 - 600
Consulting fees 2,220 1,935 285
Travel 220 - 220
---------------- ---------------- ----------------
TOTAL EXPENSES 9,281 4,431 4,850
---------------- ---------------- ----------------
NET LOSS (9,281) (4,431) (4,850)
Accumulated deficit
Balance, Beginning of period - - (4,431)
---------------- ---------------- ----------------
Balance, End of period $ (9,281) $ (4,431) $ (9,281)
================ ================ ================
NET LOSS PER SHARE $ (0.01) $ (NIL) $ (NIL)
================ ================ ================
WEIGHTED AVERAGE NUMBER OF
SHARES OF COMMON STOCK AND
COMMON STOCK EQUIVALENTS
OUTSTANDING 639,344 628,506 641,156
================ ================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
Vector Energy Corporation
FKA Sunburst Acquisitions II, Inc.
STATEMENT OF STOCKHOLDERS' EQUITY
For the period from inception (March 24, 1997) to April 30, 1998
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Deficit
Preferred Stock Common Stock accumulated Total
--------------------- --------------------- during the Additional stock-
Number of Number of development paid-in holders'
Shares Amount shares Amount stage capital equity
------------ ------ ------------ ------ ----------- ----------- --------
Preferred stock issued for
cash, April 1997 at
$0.10 per share 80,000 8,000 - - - - 8,000
Common Stock issued for
services, February 1997
at $0.001 per share - - 1,.935,000 1,935 - - 1,935
Net loss for the period
ended April 30, 1997 - - - - (4,431) - (4,431)
Common stock issued for
services, November 1997
at $0.003 per share - - 95,000 285 - - 285
APIC @ No rent charge - - - - - 600 600
Net loss for the period
ended April 30, 1998 - - - - (4,850) - (4,850)
------------ ------ ------------ ------ ----------- ----------- -------
Balance at April 30, 1998 80,000 $ 8,000 2,030,000 $ 2,220 $ (9,281) $ 600 $ 1,539
============ ====== ============ ====== =========== =========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
Vector Energy Corporation
FKA Sunburst Acquisitions II, Inc.
STATEMENTS OF CASH FLOW
For the period from inception (March 24, 1997) to April 30, 1998
<TABLE>
<S> <C> <C> <C>
For the period
from inception
(March 24, For the For the initial
1997) to year ended period ended
April 30, 1998 April 30, 1997 April 30, 1998
-------------- -------------- --------------
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net Loss $ (9,281) $ (4,431) $ (4,850)
Adjustments to reconcile
net loss to net cash used
by operating activities:
Amortization expense 60 - 60
Rent expense 600 - 600
Stock issued for
consulting fees 2,220 1,935 285
Increase in accounts
payable - related party 721 273 448
-------------- -------------- --------------
Net cash used by
operating activities (5,680) (2,223) (3,457)
CASH FLOWS FROM
INVESTING ACTIVITIES
Organization costs (300) (300) -
-------------- -------------- --------------
Net cash used by
investing activities (300) (300) -
CASH FLOWS FROM
FINANCING ACTIVITIES
Issuance of preferred
stock 8,000 8,000 -
-------------- -------------- --------------
Net cash provided
financing activities 8,000 8,000 -
-------------- -------------- --------------
Net increase (decrease)
in cash and cash
equivalents 2,020 5,477 (3,457)
CASH AND CASH EQUIVALENTS,
Beginning of Period - - 5,477
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS,
End of Period $ 2,020 $ 5,477 2,020
============== ============== $==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
Vector Energy Corporation
FKA Sunburst Acquisitions II, Inc.
NOTES TO FINANCIAL STATEMENTS
April 30, 1998
1. Summary of Significant Accounting Policies
Development Stage Company
Vector Energy Corporation (FKA Sunburst Acquisitions II, Inc.) ("the
Corporation") was incorporated under the laws of the State of Colorado on March
24, 1997. At the date of these financial statements, principal office of the
corporation was 4807 South Zang Way, Morrison, Colorado 80465. In the
transaction described in Note 6, Sunburst Acquisitions II, Inc. acquired
certain assets from, and changed its name to Vector Energy Corporation.
Prior to this, the Corporation was a new enterprise in the development stage as
defined by Statement No. 7 of the Financial Accounting Standards Board and had
not engaged in any business other than organizational efforts.
Accounting Method
The Corporation records income and expenses on the accrual method.
Fiscal Year
The Corporation has selected an April 30 year end.
Loss Per Share
Loss per share was computed using the weighted average number of common
shares and common share equivalents outstanding during the period. As part of
the Corporation's transaction, more fully described in Note 6, the Corporation
underwent a defacto reverse stock split whereby the holders of the
Corporation's common stock received one share of Vector Energy Corporation
common stock for every 3.3333 existing shares. Except as otherwise indicated,
all share and per share amounts in these financial statements have been
restated to reflect this share adjustment.
Organizational Costs
Costs to incorporate the Corporation have been capitalized and are being
amortized over a sixty-month period.
Use of Estimates
The preparation of the Corporation's financial statements in conformity
with generally accepted accounting principles requires the Corporation's
management to make estimates and assumptions that effect the amounts reported
in these financial statements and accompanying notes. Actual results could
differ from those estimates.
Fair Values of Financial Instruments
Unless otherwise indicated, the fair value of all reported assets and
liabilities which represent financial instruments (none of which are held for
trading purposes) approximate the carrying values of such amounts.
Statement of Cash Flows
For the purposes of the statement of cash flows, the Corporation considers
all highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
2. Stockholders' Equity
As of April 30, 1998, 2,030,000 (pre-split) shares of the Corporation's no par
value common stock had been issued for consulting services provided. The
stock was issued at $0.001 per share for 1,935,000 shares and $0.003 per share
for 95,000 shares, which represented the fair market value of the services
rendered.
As of April 30, 1998, 80,000 (pre-split) shares of the Company's no par value
Series A preferred stock had been issued at $0.10 per share. Subsequent to the
year ended April 30, 1998 and in connection with the Vector Energy transaction
disclosed in Note 6, these shares were converted to common stock at the rate of
two shares of common stock for each share of preferred outstanding.
F-6
<PAGE>
Vector Energy Corporation
FKA Sunburst Acquisitions II, Inc.
NOTES TO FINANCIAL STATEMENTS
April 30, 1998
3. Related Party Transactions
As of the date of these financial statements, Michael R. Quinn and Jay Lutsky
were the officers and directors of the Corporation, and the owners of
approximately 70% of the Corporation's issued and outstanding commons stock.
In addition, these officers held 10,000 (pre-split) Series A preferred shares,
which, upon conversion by all Series A preferred stockholder, had the effect of
reducing the outstanding ownership by these directors to approximately 66%.
The accounts payable of $721 is due to Gary Joiner, corporate counsel and one
of the initial shareholders of the Corporation.
The Corporation's President is providing office space at no charge to the
Corporation. For purposes of the financial statements, the Corporation is
accruing $50 per month as additional paid-in capital for this use.
4. Income Taxes
The Corporation has Federal net operating loss carryforwards of approximately
$8,800 expiring in the years 2012 and 2013. The tax benefit of these net
operating losses is approximately $1,700, and has been offset by a full
allowance for realization. These carryforwards may be limited upon the
consummation of a business combination under IRC Section 381. For the year
ended April 30, 1998 and the period ended April 30, 1997, the valuation
allowance increased by $847 and $853, respectively.
5. Supplemental Disclosure of Non-cash Financing Activities
For the year ended April 30, 1998 and the initial period ended April 30, 1997,
the Corporation accumulated $60 and $-0-, respectively of amortization of the
organization costs.
Similarly, for the year ended April 30, 1998 and the initial period ended April
30, 1997, the Corporation recorded $600 and $-0- as rent expense in additional
paid-in capital.
F-7
<PAGE>
Vector Energy Corporation
FKA Sunburst Acquisitions II, Inc.
NOTES TO FINANCIAL STATEMENTS
April 30, 1998
6. Subsequent Event
Asset Acquisition
Effective as of May 8, 1998, Sunburst Acquisitions II, Inc. ("the
Company") acquired various working and royalty interest in oil and gas
properties pursuant to an asset purchase agreement with Vector Energy
Corporation, a privately held Texas corporation ("old Vector"). The
transaction consisted of a transfer by old Vector of substantially all of its
oil and gas holdings, as well as the rights to purchase contracts with Lisbon
Development Company LLC ("Lisbon") and Taurus Operating Inc. ("Taurus"),
which assigned rights were exercised as part of the transaction.
The following shares were issued in connection with this transaction:
<TABLE>
<S> <C> <C> <C> <C>
Number of Number of Number of
common preferred B preferred AA
shares shares shares Consideration
----------- ------------- -------------- ------------------
Mr. Stephen Noser 300,000 250,000 - $1,000 cash
Old Vector (1) 100,000 - - Oil & gas interests
valued at $300,000
Mr. Samuel Skipper 1,630,017 250,000 - $1,000 cash
Taurus Operating, Inc. 213,122 - - Oil & gas interests
valued at $640,000
Miscellaneous cash investors 550,000 - - $501,000 cash
Lisbon Development Group 30,000 Oil & gas interests
valued at $9,900,000
</TABLE>
(1) Mr. Stephen Noser owns 50% of Old Vector
In addition to share issuances, the Company assumed secured debt in the amount
of approximately $6.1 million and $800,000 in accounts payable. All properties
acquired are valued at approximately $10,840,000. The transaction will be
accounted for as a purchase, with the acquired assets and liabilities recorded
at their fair market values at the date of the business combination.
As a result of this asset acquisition transaction, Stephen Noser and Samuel
Skipper acquired 77.7% of the voting rights of Sunburst Acquisitions II, Inc.
and in the process became the sole two directors of the Company. In addition,
Mr. Noser became the President, Secretary and Assistant Treasurer of the
Company, and Mr. Skipper became the Chairman of the Board and Chief Executive
Officer of the Company. Previous to the transaction, Michael R. Quinn and
Jay Lutsky controlled 74.37% of the votes of Sunburst Acquisitions II, Inc. and
acted as the Company's directors and executive officers.
The Company's Class B Preferred Stock is not convertible but has 100
(post-split) votes for every share of Class B Preferred Stock. The Company's
Class AA Preferred Stock carries a 6% cumulative dividend, is convertible into
common stock at the rate of 100 common shares for every preferred share
converted, and votes at a rate of 100 shares per share of AA Preferred.
Migratory Merger
On June 19, 1998, the Company received approval by its shareholders to
merge its operations into Vector Energy Corporation, a newly formed Texas
corporation wholly owned by the Company, whereby Vector Energy Corporation
became the surviving corporation.
F-8
<PAGE>
Vector Energy Corporation
FKA Sunburst Acquisitions II, Inc.
NOTES TO FINANCIAL STATEMENTS
April 30, 1998
6. Subsequent Event (Continued)
The migratory merger resulted in a change in the Company's state of
incorporation from Colorado to Texas pursuant to an Agreement and Plan of
Merger ("the Merger Agreement"). The Migratory Merger provides for the merger
of Sunburst Acquisitions II, Inc., with and into Vector Energy Corporation.
Sunburst Acquisitions II, Inc. will continue its operations under the name of
"Vector Energy Corporation".
All Common Stock Shareholders of Sunburst Acquisitions II, Inc., received one
share of common stock, no par value, in the new entity. ("VEC Common") for
every 3.333 shares of Common Stock presently held. All Preferred Stock
shareholders in the Company will receive one share of Preferred Stock, no par
value, in the new entity ("VEC Preferred") for every one share of Preferred
Stock presently held.
The rights and privileges attributable to the Common Stock and the Preferred
Stock will be identical to the rights and privileges of the VEC Common and VEC
Preferred; provided however, that the voting percentages of the VEC Common and
the Class AA Preferred Stock of VEC with respect to 100% of the votes of VEC
will be reduced on a 1 for 3.3333 basis.
The Migratory Merger will not result in any additional changes in the business,
management, location of principal executive office, assets, liabilities or net
worth of the Company.
All assets, property rights, liabilities and obligations of the Company will
be transferred to and assumed by VEC.
F-9
<PAGE>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AND STATEMENTS OF LOSS AND ACCUMULATED DEFICIT AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH 10KSB FOR THE YEAR ENDED APRIL 30, 1998.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> APR-30-1998
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<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2020
<PP&E> 0
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<TOTAL-ASSETS> 2260
<CURRENT-LIABILITIES> 721
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0
8000
<COMMON> 2220
<OTHER-SE> (8681)
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