UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITITES
EXCHANGE ACT OF 1934.
For the quarter ended October 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-22661
VECTOR ENERGY CORPORATION
(Exact name of small business issuer in its charter)
Texas 76-0582614
(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 office)
(713) 850-9993
(Issuer's telephone number)
Sunburst Acquisition s II, Inc.
4807 South Zang Way
Morrison, Colorado 80465
(Former name and former address)
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 [ ].
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after distribution of
securities under a plan confirmed by a court Yes [ ] No [ ].
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
At November 17, 1998 there were 3,641,485 shares of no par value common stock
outstanding
Transitional Small Business Disclosure Format (Check one) Yes [ ] No [X].
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited financial statements of the Company appearing at page F-1
through F-7 hereof are incorporated by reference.
Item 2. Management's Discussion and Analysis or Plan of Operation
On October 31, 1998, The Company had a working capital deficit of $1,376,900.
This is primarily to net payables assumed in the acquisition of oil and gas
properties, and the scheduled principal payments under the Company's secured
debt. The Company began to settle many of the assumed payables for a
combination of cash and the Company's common stock. Management believes that
they will be able to continue this. On November 4, 1998, the Company entered
into an asset acquisition transaction by which the Company acquired the right,
title, and interest in certain oil, gas, and mineral leases and working
interests in approxiamately fifteen producing oil and gas wells located in
Oklahoma, Louisiana and Texas. The transaction consisted of a purchase and
sale agreement with Texas Energy and Environmental, Inc. and Cougar Oil and
Gas, Inc. (colectively the "Sellers"). In conjunction with the asset
acquisition transaction, the Company executed an amended and restated credit
agreement with its lender whereby its borrowing base was increased by
$800,000. On November 4, 1998, the Company drew down the additional $800,000
and used the proceeds to repay the bank debt and certain other of the other
liabilities assumed in the asset acquisition transaction. In addition, the
Company borrowed $500,000 from a stockholder under a six-month promissory
note. Such note bears interest at 10% per annum and is subordinate to the
Company's credit agreement. The holder of the promissory note received
warrants to purchase 100,000 shares of the Company's common stock at $0.10 per
share. Such warrants expire ten years from the date granted. The holder of
the note is entitled to receive up to 300,000 shares of the Company's common
stock if certain provisions extending the term of the note are exercised. The
note also provides that the Company will use its best efforts to raise
additional equity capital, and any capital so raised shall be used to repay
the promissory note.
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 8.4101%. 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
Februar 15, 1999. In addition the, 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.
In conjunction with the asset acquisition transaction, the principal payments
under the note were restructured to $10,000 per month beginning December 15,
1998, increasing to $75,000 per month beginning February 15, 1998 and
increasing to $125,000 per month beginning May 15, 1998. In addition, certain
of the deadlines relating to the settlement of liabilities assumed and
expenditures for the development of the mortgaged properties were extended.
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
asset acquisition transaction and theplanned 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.
<PAGE>
PART II - OTHER INFORMATION
Item 1. 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 2. Changes in Securities and Use of Proceeds
The information required by this item is provided in the Notes to Financial
Statements appearing a pages F-6 and F-7 hereof and are incorporated by
reference.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - FINANCIAL DATA SCHEDULE
(b) None
<PAGE>
SIGNATURES
In accordance with 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 Fiancial Officer
Principal Financial and
Accounting Officer
Date: December 18, 1998
By /S/ Stephen F. Noser
-----------------------------
Stephen F. Noser
President
Principal Executive Officer
Date: December 18, 1998
<PAGE>
VECTOR ENERGY CORPORATION
(Formerly Sunburst Acquisitions II, Inc.)
FINANCIAL STATEMENTS
(Unaudited)
October 31, 1998
<PAGE>
CONTENTS
CONSOLIDATED BALANCE SHEET - ASSETS F-2
CONSOLIDATED BALANCE SHEET - LIABILITIES AND STOCKHOLDER'S EQUITY F-3
CONSOLIDATED STATEMENTS OF LOSS AND ACCUMULATED DEFECIT F-4
CONSOLIDATED STATEMENTS OF CASH FLOW F-5
NOTES TO FINANCIAL STATEMENTS F-6
F-1
<PAGE>
<TABLE>
<CAPTION>
Vector Energy Corporation
(Formerly Sunburst Acquisitions II, Inc.)
CONSOLIDATED BALANCE SHEET
ASSETS
October 31, 1998
(Unaudited)
<S> <C>
CURRENT ASSETS
Cash and cash equivalents 10,300
Accounts receivable 453,300
Other current assets 63,900
----------
Total current assets 527,500
----------
PROPERTY, PLANT AND EQUIPMENT
Oil and gas properties, using the full cost
method of accounting 10,954,900
Other property 52,400
----------
Total property, plant and equipment 11,007,300
Accumulated depreciation and depletion (352,800)
----------
Net property, plant and equipment 10,654,500
----------
OTHER ASSETS 2,200
----------
TOTAL ASSETS 11,184,200
----------
<F01>
The accompanying notes are an integral part of these financial statements.
F-2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Vector Energy Corporation
(Formerly Sunburst Acquisitions II, Inc.)
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
October 31, 1998
(Unaudited)
<S> <C>
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 864,400
Current portion of long-term debt 1,040,000
----------
Total current liabilities 1,904,400
----------
LONG-TERM DEBT 5,060,000
OTHER LIABILITIES 700
STOCKHOLDERS' EQUITY
Class AA 6% cumulative convertible preferred
stock, $100.00 par value, 30,000 shares
authorized, issued and outstanding 3,000,000
Class B preferred stock, $1.00 par value,
500,000 shares authorized, issued and
outstanding -
Class C 5% cumulative convertible preferred
stock $100.00 par value, 10,000 shares
authorized; 1,250 shares issued and
outstanding 95,000
Common stock, no par value, 100,000,000
shares authorized; 3,561,443 shares issued
and outstanding 1,652,100
Additional paid in capital 600
Retained Deficit (528,600)
----------
Total stockholders' equity 4,319,100
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,184,200
<F01>
The accompanying notes are an integral part of these financial statements.
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Vector Energy Corporation
(Formerly Sunburst Acquisitions II, Inc.)
CONSOLIDATED STATEMENTS OF LOSS AND ACCUMULATED DEFECIT
Period Ended
October 31, 1998
(Unaudited)
<S> <C> <C>
Three Months Six Months
----------- -----------
OIL AND GAS SALES $ 207,200 $ 268,100
OPERATING COSTS AND EXPENSES
Production taxes and other costs 11,100 27,400
Lease operating expense 105,000 191,600
Depletion 177,100 347,600
Depreciation 2,900 5,200
General and administrative 73,600 172,100
----------- -----------
Total operating costs and expenses 369,700 743,900
----------- -----------
OPERATING LOSS (162,500) (268,600)
Interest and other income 1,500 3,800
Interest expense (135,900) (254,500)
----------- -----------
NET LOSS $ (296,900)$ (519,300)
Defecit accumulated during the
development stage - (9,300)
Retained defecit, Beginning (231,700) -
----------- -----------
RETAINED DEFECIT $ (528,600)$ (528,600)
----------- -----------
NET LOSS PER SHARE $ (0.08) $ (0.15)
-------- --------
WEIGHTED AVERAGE NUMBER OF COMMON STOCK
AND COMMON STOCK EQUIVALENTS OUTSTANDING 3,777,779 3,566,799
--------- ---------
<F01>
The accompanying notes are an integral part of these financial statements.
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Vector Energy Corporation
(Formerly Sunburst Acquisitions II, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOW
Period Ended
October 31, 1998
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (296,900) $ (519,300)
Adjustments to reconcile net loss to cash
(used by) provided from operating activities
Depreciation and depletion 180,000 352,800
Change in assets and liabilities, net of
effect of acquisitions
Increase (decrease) in accounts payable
and accrued liabilities (55,700) (153,200)
(Increase) decrease in accounts recievable 30,000 105,300
Other (33,500) (38,400
---------- ----------
Net cash (used by) or provided from
operating activities $ (176,100) $ (252,800)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Development of oil and gas properties (79,500) (288,000)
Purchase of other property (400) (45,900)
----------- ----------
Net cash (used by) or provided from
investing activities $ (79,900) $ (333,900)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of preferred stock for cash - 95,000
Issuance of common stock for cash - 502,000
----------- ----------
Net cash (used by) or provided from
financing activities $ - $ 597,000
----------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (256,000) 10,300
CASH AND CASH EQUIVALENTS
BEGINNING OF PERIOD 266,300 -
----------- ----------
END OF PERIOD $ 10,300 $ 10,300
----------- ----------
<F01>
The accompanying notes are an integral part of these financial statements.
F-5
</TABLE>
<PAGE>
VECTOR ENERGY CORPORATION
(Formerly Sunburst Acquisitions II, Inc.)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
October 31, 1998
Management's Representation of Interim Financial Information
The accompanying financial statements have been prepared by Vector Energy
Corporation (The Company)without audit pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and
footnote disclosure normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted as allowed by such rules and regulations, and management
believes that the disclosures are adequate to make the information presented
not misleading. These financial statements include all of the adjustments
which, in the opinion of management, are necessary to a fair presentation of
financial position and results of operations. These financial statements
should be read in conjunction with the audited financial statements included
in the Company's Form 10-KSB, as of April 30, 1998.
Principles of Consolidation
These consolidated financial statements include the accounts of Vector Energy
Corporation (a Texas Company) and Vector Exploration, Inc. (a Texas Company)
after elimination of significant intercompany balances and transactions.
Reverse Stock Split
In conjunction with several acquisitions, more fully described below, the
Company underwent a defacto reverse stock split whereby holder's of the
Company's common stock received 1 share of common stock for every 3.3333
shares of common stock previously held. All share and per share amounts
reflect this share adjustment.
Acquisitions
On May 8, 1998, the Company, through its wholly-owned subsidiary Vector
Exploration, Inc., completed an asset purchase agreement, dated
March 23, 1998, whereby the Company acquired thirteen oil and gas wells
located in East Texas and North Louisiana. The consideration given for the
acquisition was as follows:
<TABLE>
<S> <C>
30,000 shares of Class AA 6% Cumulative
Convertible Preferred Stock $ 3,000,000
Assumption of $6,100,000 in secured debt 6,100,000
Assumption of other liabilities, net 459,000
---------
$ 9,559,000
---------
</TABLE>
Also on May 8, 1998, the Company completed an asset purchase agreement, dated
March 31, 1998, whereby the Company acquired a majority working interest in
a waterflood project in West Texas. The consideration given for the
acquisition was as follows:
<TABLE>
<S> <C>
213,122 shares of the Company's common stock $ 639,000
========
</TABLE>
Also on May 8, 1998, the Company acquired non-operated working and royalty
interests in approximately 80 wells located primarily in Oklahoma and Kansas.
The consideration given for the acquisition was as follows:
<TABLE>
<S> <C>
100,000 shares of the Company's common stock $ 300,000
========
</TABLE>
In conjunction with the above acquisitions, the Company has capitalized
approximately $130,000 in transaction expenses.
F-6
<PAGE>
VECTOR ENERGY CORPORATION
(Formerly Sunburst Acquisitions II, Inc.)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
October 31, 1998
Long-term debt
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 was 8.6875% on July 31, 1998. The borrowing
base 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 in September and
increasing to $125, 000 in February. In addition, the note places certain
restrictions on the use of revenues from the mortgaged
properties.
In conjunction with an asset acquisition transaction consumated on November 4,
1998, the principal payments due under this note have been restructured and
the borrowing base was increased to $6,900,000.
Equity Transactions
In conjunction with the acquisitions, described above, the Company sold
2,230,023 shares of the Company's common stock and 500,000 shares of the
Company's Class B Preferred Stock for $3,000 in cash to certain of the
officers and directors of the Company In addition, the Company completed a
private placement of 250,002 shares of the Company's common stock for
$500,000 in cash.
The Company has issued 116,014 shares of common stock to acquire additional
interests in certain of the properties acquired on May 8, 1998.
The Company has issued 11,497 shares of common stock in settlement of certain
liabilities assumed on May 8, 1998.
Subsequent Event
On November 4, 1998 the Company entered into an asset acquisition transaction
by which the Company acquired the right, title, and interest in certain oil,
gas, and mineral leases and working interests in approximately fifteen
producing oil and gas wells located in Oklahoma, Louisiana and Texas. The
transaction consisted of a purchase and sale agreement with Texas Energy and
Environmental, Inc. and Cougar Oil and Gas,Inc. (collectively the "Sellers").
Pursuant to the asset acquisition transaction, the Company issued 1,226,667
shares of its common stock to the Sellers, and assumed approximately $750,000
of the Seller's bank debt and approximately $750,000 of other liabilities of
the Sellers. In addition, the Sellers are entitled to receive up to 500,000
additional shares of the Company's common stock based on the value of the
proved reserves attributed to the properties acquired, as determined by an
independent engineering evaluation on September 30, 1999. The purchase and
sale agreement also requires the Company to expend a minimum of $500,000 in
capital investment on the properties acquired, within nine months. If such
capital investment is not made, the Sellers are entitled to receive an
additional 500,000 shares of the Company's common stock.
In conjunction with the asset acquisition transaction, the Company executed
an amended and restated credit agreement with its lender whereby its
borrowing base was increased by $800,000. On November 4, 1998, the Company
drew down the additional $800,000 and used the proceeds to repay the bank debt
and certain of the other liabilities assumed in the asset acquisition
transaction.
In addition, the Company borrowed $500,000 from a stockholder under a
six-month promissory note. Such note bears interest at 10% per annum and is
subordinate to the Company's credit agreement. The holder of the promissory
note received warrants to purchase 100,000 shares of the Company's common
stock at $0.10 per share. Such warrants expire ten years from the date
granted. The holder of the note is entitled to receive up to 300,000 shares
of the Company's common stock if certain provisions extending the term of the
note are exercised. The note also provides that the Company will use its best
efforts to raise additional equity capital, and any capital so raised shall
be used to repay the promissory note.
