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 July 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 August 19, 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
July 31, 1998, The Company had a working capital deficit of $1,242,500. 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. Subsequent to July 31, 1998, 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. The Company is
currently in discussion with the lender under its secured debt to dely the
scheduled principal payments in conjunction with an increase in the Company's
borrowing base created by an additional acquisition. It is anticipated that
such acquisition will be funded by a combination of additional advances under
the Company's secured debt and the sale and issuance of the Company's common
stock. However, there can be no assurance that such an acquisition will be
completed, or that the scheduled principal payments will be delayed.
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
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.
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.
<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
The Company's Proxy Statement for a Special Meeting of Shareholders held on
June 19, 1998 is hereby incorporated by reference.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - FINANCIAL DATA SCHEDULE
(b) Reports on Form 8-K
Form 8-K reporting the acquisition of several groups of oil and gas
properties on may 8, 1998.
Form 8-K/A furnishing the Statements of Revenue and Direct Expenses
of the Assets acquired from Lisbon Development Company, L.L.C.,
Taurus Operating, Inc. and Vector Energy Corporation for the years
ended December 31, 1997 and 1998 and for the Three Months ended
March 31, 1998 and whose report was dated June 29, 1998.
<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: September 21, 1998
By /S/ Stephen F. Noser
-----------------------------
Stephen F. Noser
President
Principal Executive Officer
Date: September 21, 1998
<PAGE>
VECTOR ENERGY CORPORATION
(Formerly Sunburst Acquisitions II, Inc.)
FINANCIAL STATEMENTS
(Unaudited)
July 31, 1998
<PAGE>
CONTENTS
CONSOLIDATED BALANCE SHEET - ASSETS F-2
CONSOLIDATED BALANCE SHEET - LIABILITIES AND STOCKHOLDER'S EQUITY F-3
CONSOLIDATED STATEMENT OF LOSS AND ACCUMULATED DEFECIT F-4
CONSOLIDATED STATEMENT 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
July 31, 1998
(Unaudited)
<S> <C>
CURRENT ASSETS
Cash and cash equivalents 266,300
Accounts receivable 483,300
Other current assets 53,000
----------
Total current assets 802,600
----------
PROPERTY, PLANT AND EQUIPMENT
Oil and gas properties, using the full cost
method of accounting 10,661,200
Other property 46,900
----------
Total property, plant and equipment 10,708,100
Accumulated depreciation and depletion (172,800)
----------
Net property, plant and equipment 10,535,300
----------
OTHER ASSETS 2,260
----------
TOTAL ASSETS 11,340,160
----------
<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
July 31, 1998
(Unaudited)
<S> <C>
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 920,100
Current portion of long-term debt 1,125,000
----------
Total current liabilities 2,045,100
----------
LONG-TERM DEBT 4,975,000
OTHER LIABILITIES 721
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 1,455,420
Additional paid in capital 600
Retained Deficit (231,681)
----------
Total stockholders' equity 4,319,339
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,340,160
<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 STATEMENT OF LOSS AND ACCUMULATED DEFECIT
Three Months Ended
July 31, 1998
(Unaudited)
<S> <C>
OIL AND GAS SALES 268,100
OPERATING COSTS AND EXPENSES
Production taxes and other costs 16,300
Lease operating expense 86,600
Depletion 170,500
Depreciation 2,300
General and administrative 98,500
---------
Total operating costs and expenses 374,200
---------
OPERATING LOSS (106,100)
Interest and other income 2,300
Interest expense (118,600)
---------
NET LOSS $ (222,400)
Defecit accumulated during the development stage (9,281)
---------
RETAINED DEFECIT $ (231,681)
---------
NET LOSS PER SHARE $ (0.07)
-----
WEIGHTED AVERAGE NUMBER OF COMMON STOCK
AND COMMON STOCK EQUIVALENTS OUTSTANDING 3,327,283
---------
<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 STATEMENT OF CASH FLOW
Three Months Ended
July 31, 1998
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (222,400)
Adjustments to reconcile net loss to cash
(used by) provided from operating activities
Depreciation and depletion $ 172,800
Change in assets and liabilities, net of effect
of acquisitions
Increase (decrease) in accounts payable and
accrued liabilities (97,500)
(Increase) decrease in accounts recievable 75,300
Other (4,900)
-------
145,700
--------
Net cash (used by) or provided from
operating activities (76,700)
--------
CASH FLOWS FROM INVESTING ACTIVITIES
Development of oil and gas properties (208,500)
Purchase of other property (45,500)
--------
Net cash (used by) or provided from
investing activities (254,000)
--------
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 266,300
CASH AND CASH EQUIVALENTS
BEGINNING OF PERIOD -
--------
END OF PERIOD $ 266,300
--------
<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)
July 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, ne 458,942
---------
$ 9,558,942
---------
</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 $ 639,366
========
</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)
July 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.
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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEET AND CONSOLIDATESD STATEMENT OF LOSS AND ACCUMULATED DEFICIT AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SYCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> JUL-31-1998
<CASH> 266,300
<SECURITIES> 0
<RECEIVABLES> 483,300
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 802,600
<PP&E> 10,708,100
<DEPRECIATION> (172,800)
<TOTAL-ASSETS> 11,340,160
<CURRENT-LIABILITIES> 2,045,100
<BONDS> 0
0
3,095,000
<COMMON> 1,455,420
<OTHER-SE> 600
<TOTAL-LIABILITY-AND-EQUITY> 11,340,160
<SALES> 268,100
<TOTAL-REVENUES> 270,400
<CGS> 0
<TOTAL-COSTS> 374,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 118,600
<INCOME-PRETAX> (222,400)
<INCOME-TAX> 0
<INCOME-CONTINUING> (222,400)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (222,400)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
