UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITITES
EXCHANGE ACT OF 1934. For the quarter ended January 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
VECTOR ENERGY CORPORATION
(Name of small business issuer in its charter)
Texas
(State or other jurisdiction of
incorporation or organization)
76-0582614
(I.R.S. Employer
Identification No.)
5599 San Felipe, Suite 620
Houston, Texas 77056
(Address of principal executive office)
(713) 850-9993
(Issuer's telephone number)
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 March 2, 1999 there were 5,689,863 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-8 hereof are incorporated by reference.
Item 2. Management's Discussion and Analysis or Plan of Operation
On January 31, 1999, The Company had a working capital deficit of $2,333,500.
This is primarily due 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 has begun 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 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"). 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 $.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 8.065%. The borrowing base
under the note is determined periodically based upon the collateral value
assigned to the mortgaged properties, and is currently $6,880,000. Principal
payments were scheduled at $10,000 per month and increasing to $75,000 per
month beginning on February 15, 1999 and $125,000 per month beginning
May 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 May 31, 1999 and requires the
expenditure of $300,000 on the development of the mortgaged properties by
April 14, 1999. 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.
On February 23, 1999, the Company entered into an agreement with its lender
to amend its revolving credit note. Such amendment modifies the principal
payments under the note to $75,000 per month beginning April 15, 1999 and
increasing to $125,000 on May 15, 1999. In addition, the amendment deferred
a portion of the interest payment due in February for a period of one month.
In addition, certain of the deadlines relating to the settlement of
liabilities assumed and expenditures for the development of the mortgaged
properties were extended or modified.
<PAGE>
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 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.
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 at pages F-6 through F-8 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) Reports on Form 8-K
Form 8-K reporting the acquisition of oil and gas properties on
November 4, 1998.
Form 8-K/A furnishing the Statements of Revenue and Direct Expenses of
the Assets Acquired from Texas Energy and Environmental, Inc. for the
Years Ended April 30, 1998 and 1997 and for the Four Months Ended
August 31, 1998 and whose report was dated January 21, 1999.
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 Financial Officer
Principal Financial and Accounting Officer
Date: March 11, 1999
By /S/ Stephen F. Noser
-----------------------------
Stephen F. Noser
President
Principal Executive Officer
Date: March 11, 1999
<PAGE>
VECTOR ENERGY CORPORATION
(Formerly Sunburst Acquisitions II, Inc.)
FINANCIAL STATEMENTS
(Unaudited)
January 31, 1999
<PAGE>
CONTENTS
CONSOLIDATED BALANCE SHEET - ASSETS F-2
CONSOLIDATED BALANCE SHEET - LIABILITIES AND STOCKHOLDERS' 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>
Vector Energy Corporation
(Formerly Sunburst Acquisitions II, Inc.)
CONSOLIDATED BALANCE SHEET
ASSETS
January 31, 1999
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 67,200
Accounts receivable 402,200
Prepaid expenses and other current assets 820,200
------------
Total current assets 1,289,600
------------
PROPERTY, PLANT AND EQUIPMENT
Oil and gas properties, using the full cost
method of accounting 14,702,600
Other property 63,000
------------
Total property, plant and equipment 14,765,600
Accumulated depreciation and depletion (504,200)
------------
Net property, plant and equipment 14,261,400
------------
OTHER ASSETS 2,200
TOTAL ASSETS $15,553,200
============
The accompanying notes are an integral part of these financial statements
F-2
<PAGE>
Vector Energy Corporation
(Formerly Sunburst Acquisitions II, Inc.)
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
January 31, 1999
(Unaudited)
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 1,673,100
Notes payable 600,000
Current portion of long-term debt 1,350,000
------------
Total current liabilities 3,623,100
------------
LONG-TERM DEBT 5,530,000
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; 5,607,089 shares issued
and outstanding 4,204,700
Additional paid in capital 600
Retained Deficit (900,900)
------------
Total stockholders' equity 6,399,400
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $15,553,200
============
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
Vector Energy Corporation
(Formerly Sunburst Acquisitions II, Inc.)
CONSOLIDATED STATEMENTS OF LOSS AND ACCUMULATED DEFECIT
Period Ended
January 31, 1999
(Unaudited)
Three Months Nine Months
------------ ------------
OIL AND GAS SALES $ 344,400 $ 819,700
------------ ------------
OPERATING COSTS AND EXPENSES
Production taxes and other costs 12,100 39,500
Lease operating expense 236,000 427,600
Depletion 148,500 496,100
Depreciation 2,900 8,100
General and administrative 174,700 346,800
------------ ------------
Total operating costs and expenses 574,200 1,318,100
------------ ------------
OPERATING LOSS (229,800) (498,400)
Interest and other income 1,300 5,100
Interest expense (143,800) (398,300)
------------ ------------
NET LOSS $ (372,300) $ (891,600)
Defecit accumulated during the development stage - (9,300)
Retained Defecit, Beginning (528,600) -
------------ ------------
RETAINED DEFECIT $ (900,900) $ (900,900)
============ ============
NET LOSS PER SHARE $ (0.07) $ (0.22)
======== ========
WEIGHTED AVERAGE NUMBER OF COMMON
STOCK AND COMMON STOCK EQUIVALENTS
OUTSTANDING 5,188,112 4,107,237
========= =========
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
Vector Energy Corporation
(Formerly Sunburst Acquisitions II, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOW
Period Ended
January 31, 1999
(Unaudited)
Three Months Nine Months
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (372,300) $ (891,600
Adjustments to reconcile net loss to cash
(used by) provided from operating
activities
Depreciation and depletion 151,400 504,200
Change in assets and liabilities,
net of effect of acquisitions
Increase (decrease) in accounts
payable and accrued liabilities 663,200 510,000
(Increase) decrease in accounts
recievable (376,700) (271,400)
Other (59,000) (97,400)
------------ ------------
Net cash (used by) or provided from
operating activities $ 6,600 $ (246,200)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Development of oil and gas properties (467,600) (755,600)
Purchase of other property (17,100) (63,000)
------------ ------------
Net cash (used by) or provided from
investing activities $ (484,700) $ (818,600)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under revolving credit note 800,000 800,000
Repayments under revolving credit note (20,000) (20,000)
Borrowing under notes payable 500,000 500,000
Repayments under notes payable (745,000) (745,000)
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 $ 535,000 $ 1,132,000
------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 56,900 67,200
CASH AND CASH EQUIVALENTS
BEGINNING OF PERIOD 10,300 -
------------ ------------
END OF PERIOD $ 67,200 $ 67,200
============ ============
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
VECTOR ENERGY CORPORATION
(Formerly Sunburst Acquisitions II, Inc.)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
January 31, 1999
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:
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
============
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:
213,122 shares of the Company's common stock $ 639,000
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:
100,000 shares of the Company's common stock $ 300,000
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)
January 31, 1999
Acquisitions (continued)
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, issued a $120,000 non-interest
bearing note payable to the Sellers, and assumed certain of the Sellers' bank
debt and other liabilities. 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 developed producing 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. The consideration given for the acquisition was as
follows:
1,226,667 shares of Common Stock $ 1,840,000
Assumption of $725,000 in secured debt 725,000
Issuance of note payable 120,000
Assumption of other liabilities, net 574,000
------------
$ 3,259,000
============
In conjunction with the above acquisition, the Company has capitalized
approximately $45,000 in transaction expenses.
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 $.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.
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 8.065% on January 31, 1999. The
borrowing base is determined periodically based upon the collateral value
assigned to the mortgaged properties, and is currently $6,880,000. Principal
payments are currently scheduled at $10,000 per month and increasing to
$75,000 per month beginning on February 15, 1999 and $125, 000 per month
beginning on May 15, 1999. In addition, the note places certain restrictions
on the use of revenues from the mortgaged properties.
On February 23, 1999, the Company entered into an agreement with its lender
to amend its revolving credit note. Such amendment modifies the principal
payments under the note to $75,000 per month beginning April 15, 1999 and
increasing to $125,000 on May 15, 1999. In addition, the amendment deferred
a portion of the interest payment due in February for a period of one month.
F-7
<PAGE>
VECTOR ENERGY CORPORATION
(Formerly Sunburst Acquisitions II, Inc.)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
January 31, 1999
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 11,941 shares of common stock in settlement of certain
of the liabilities assumed on May 8, 1998.
The Company has issued 691,000 shares of common stock to various consultants
in return for future services. The Company has capitalized $722,800 in
prepaid expenses related to such shares, and will amortized the balance over
the term of the services to be provided.
F-8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF LOSS AND
ACCUMULATED DEFECIT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> APR-30-1999 APR-30-1999
<PERIOD-END> JAN-31-1999 JAN-31-1999
<CASH> 67,200 67,200
<SECURITIES> 0 0
<RECEIVABLES> 402,200 402,200
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,289,600 1,289,600
<PP&E> 14,765,600 14,765,600
<DEPRECIATION> (504,200) (504,200)
<TOTAL-ASSETS> 15,553,200 15,553,200
<CURRENT-LIABILITIES> 1,673,100 1,673,100
<BONDS> 0 0
0 0
3,095,000 3,095,000
<COMMON> 4,204,700 4,204,700
<OTHER-SE> (900,300) (900,300)
<TOTAL-LIABILITY-AND-EQUITY> 15,553,200 15,553,200
<SALES> 344,400 819,700
<TOTAL-REVENUES> 345,700 824,800
<CGS> 0 0
<TOTAL-COSTS> 574,200 1,318,100
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 143,800 398,300
<INCOME-PRETAX> (372,300) (891,600)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (372,300) (891,600)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (372,300) (891,600)
<EPS-PRIMARY> (0.07) (0.22)
<EPS-DILUTED> (0.07) (0.22)
</TABLE>
