SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999.
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the transition period from to
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Commission file number 333-47699
Fan Energy Inc.
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(Exact name of small business issuer as specified in its charter.)
Nevada 333-47699 77-0140428
--------------------------- --------------- -------------------
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
1801 Broadway, Suite 720, Denver, Colorado 80202
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(Address of principal executive offices) (Zip Code)
(303) 296-6600
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(Issuer's telephone number,
including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the 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 [ ]
As of March 31, 1999 the Registrant had outstanding 10,051,704 shares of common
stock, par value $.001.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE>
FAN ENERGY INC.
FORM 10-QSB
MARCH 31, 1999
Table of Contents
-----------------
Part I Financial Information
Item 1. Financial Statements
Balance Sheets as of December 31, 1998 and
March 31, 1999 2
Statements of Operations for the Three Months Ended
March 31, 1998 and 1999 3
Statements of Cash Flows for the Three Months Ended
March 31, 1998 and 1999 4
Notes to Financial Statements 5
Item 2. Management's Plan of Operation 6 - 8
Part II
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures
<PAGE>
PART I
Item 1. Financial Statements
<TABLE>
<CAPTION>
FAN ENERGY INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
December 31, March 31,
1998 1999
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash ................................................................... $ 15,875 $ 23,149
Accounts receivable, net ............................................... -- 19,454
---------- ----------
Total Current Assets ............................................... 15,875 42,603
OIL AND GAS PROPERTIES, net ................................................ 690,584 743,256
DEFERRED OFFERING COSTS .................................................... -- 3,343
---------- ----------
$ 706,459 $ 789,202
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade ............................................... $ 1,736 $ 107,334
Due to shareholder ..................................................... -- 20,500
---------- ----------
Total Current Liabilities .......................................... 1,736 127,834
---------- ----------
STOCKHOLDERS' EQUITY
Preferred Stock, $.01 par value
Authorized - 5,000,000 shares
Issued - none ................................................... -- --
Common Stock, $.001 par value
Authorized - 95,000,000 shares
Issued and outstanding - 10,051,704 shares ...................... 10,052 10,052
Additional paid-in capital ............................................. 2,249,956 2,249,956
Deficit accumulated during the developmental stage ..................... (1,655,785) (1,699,140)
Additional paid-in capital stock options ............................... 100,500 100,500
---------- ----------
704,723 661,368
---------- ----------
$ 706,459 $ 789,202
========== ==========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
FAN ENERGY INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
Three Months Ended Cumulative
March 31, Amounts from
--------------------------- Jan. 1, 1997 to
1998 1999 March 31, 1999
<S> <C> <C> <C>
REVENUES
Oil and gas production .............................. $ -- $ 20,662 $ 20,662
------------ ------------ ------------
OPERATING EXPENSES
Lease operating expenses ............................ -- 1,208 1,208
Depreciation, depletion and amortization ............ -- 21,410 21,410
General and administrative .......................... 21,646 41,399 433,235
Impairment of oil and gas properties ................ -- -- 1,257,702
Interest ............................................ -- -- 6,247
------------ ------------ ------------
21,646 64,017 1,719,802
------------ ------------ ------------
NET (LOSS) .............................................. $ (21,646) $ (43,355) $ (1,699,140)
============ ============ ============
NET (LOSS) PER COMMON SHARE -
Basic and Diluted ................................... $ (.003) $ (.004) $ (.27)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING -
Basic and Diluted ................................... 7,771,704 10,051,704 6,263,000
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
FAN ENERGY INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
Cumulative
Three Months Ended Amounts from
March 31, Jan. 1, 1997 to
1998 1999 March 31, 1999
<S> <C> <C> <C>
CASH FLOWS FROM OPERATNG ACTIVITIES
Net (loss) ...................................................... $ (21,646) $ (43,355) $(1,699,140)
Adjustments to reconcile net (loss) to net cash
provided (used) by operating activities
Depreciation, depletion and amortization ........................ -- 21,410 21,410
Impairment of oil and gas properties ............................ -- -- 1,257,702
Stock options ................................................... -- -- 102,832
Stock for services .............................................. -- -- 93,000
Changes in assets and liabilities
Increase in accounts payable ................................ 49,105 48,673 50,409
(Increase) in accounts receivable ........................... -- (19,454) (19,454)
----------- ----------- -----------
Net Cash Provided (Used) by Operating Activities ................ 27,459 7,274 (193,241)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for oil and gas properties ............................ (93,026) -- (1,648,286)
----------- ----------- -----------
Net Cash (Used) in Investing Activities ......................... (93,026) -- (1,648,286)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of common stock warrants ................. -- -- 413,000
Proceeds from sale of common stock .............................. -- -- 1,500,000
Cash paid for offering costs .................................... (25,226) -- (48,324)
----------- ----------- -----------
Net Cash (Used) Provided by Financing Activities ................ (25,226) -- 1,864,676
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH ..................................... (90,793) 7,274 23,149
CASH, BEGINNING OF PERIODS .......................................... 424,717 15,875 --
----------- ----------- -----------
CASH, END OF PERIODS ................................................ $ 333,924 $ 23,149 $ 23,149
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
FAN ENERGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1999
The unaudited financial statements included herein were prepared from the
records of the Company in accordance with Generally Accepted Accounting
Principles and reflect all adjustments which are, in the opinion of management,
necessary to provide a fair statement of the results of operations and financial
position for the interim periods. Such financial statements generally conform to
the presentation reflected in the Company's Form 10-KSB filed with the
Securities and Exchange Commission for th year ended December 31, 1998. The
current interim period reported herein should be read in conjunction with the
Company's Form 10-KSB subject to independent audit at the end of the year.
The results of operations for the three months ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999.
5
<PAGE>
Item 2. Management's Plan of Operations
In the following discussion we are providing an analysis of our financial
condition and the Plan of Operation during the next quarter and the balance of
the fiscal year. This discussion should be read in conjunction with our
financial statements and the notes thereto. Certain matters discussed below are
based on potential future circumstances and developments which we anticipate or
expect, but which cannot be assured. Such forward-looking statements include,
but are no limited to, our plans to conduct drilling operations, trends in the
results of our operations, anticipated rates of production, natural gas and oil
prices, operating expenses and our anticipated capital requirements and capital
resources. The actual results which we achieve in our operations could differ
materially from the matters discussed in the forward-looking statements.
We generated our first revenue in the first quarter of 1999, when we began
to sell natural gas produced from the first of two successful exploratory wells
which we drilled in 1998. The producing natural gas well in the Bali prospect in
the Sacramental Basin of central California and our interest in the surrounding
unexplored acreage is being held for sale. Pending any sale of those properties,
we will continue to receive revenue from production from this well. In late 1998
we participated in drilling a successful well in the Horsethief Canyon prospect,
in which we hold a 20% working interest, and incurred approximately $160,000 in
drilling and completion costs, of which $74,000 was expended in the first
quarter. As of the date of this report, the Operator continues to test the well.
We anticipate at least two and as many as 17 additional wells may be drilled on
the prospect, of which at least two will be drilled in 1999. Our anticipated
drilling and completion expenses on the next two wells is anticipated to be
approximately $160,000. We also have the option to acquire a 20% working
interest in three additional exploratory natural gas drilling prospects
generated by Fancher Resources, LLC near the Horsethief Canyon prospect. Our
participation in drilling those prospects will be determined by availability of
capital resources.
Because we decided to discontinue further exploration of our Bali and Fiji
prospects, we took a non-cash impairment charge totaling approximately $1.25
million at the end of 1998. As a result of this charge, the book value of our
oil and natural gas properties was reduced to the approximate amount of the
present value of the oil and natural gas reserves on these properties.
We had general and administrative expenses of $41,400 in the first quarter,
compared to $21,600 in the prior year, reflecting more expenses incurred by
being a public reporting company and administering our interests in two oil and
natural gas prospects. We expect around $110,000 of such expenses for the
balance of the fiscal year. Other capital costs associated with participation in
acquiring, exploring and drilling of the Horsethief Canyon and nearby prospects
will be at least $250,000 and could be as much as $700,000, depending on such
factors as the success of initial drilling efforts, decisions by the Operator to
conduct additional exploratory drilling and related factors.
6
<PAGE>
At March 31, 1999 we had approximately $23,000 in cash and receivables of
around $19,000. We anticipate that our revenue from the production of the one
producing natural gas well on the Bali prospect will be approximately $7,500 to
$9,000 monthly during the remainder of 1999, depending upon the production rates
and applicable natural gas prices. We are presently completing arrangements for
a $150,000 line of credit which will be secured by the personal guarantee of our
Chairman. In March our President loaned us $20,500, which he will use to
exercise options during the second quarter. This loan will be used to repay
amounts owed Fancher Resources, LLC and other accounts payable and to fund some
operating expenses. We will require additional capital resources in order for us
to complete the 1999 drilling and exploration activities described above and to
pay our ongoing operating expenses.
In May 1998 we commenced a public offering in which we offered up to a
maximum of 3,000,000 common shares at $1.00 per share. No shares were sold and
expenses incurred in connection with the offering during 1998 were expensed at
year end. We have decided to revise the offering and reduce the offering price
to $.25 per share, which offering is expected to recommence during the second
quarter of 1999. We also extended to July 31, 1999 the expiration date for
outstanding warrants entitling the holders to purchase up to 1,180,000 shares of
common stock. We plan to reduce the exercise price for these warrants to $.25
per share. We are anticipating that at least a portion of these outstanding
warrants will be exercised by the warrant holders. If all the warrants are
exercised, of which there is no assurance, we would receive approximately
$295,000 by July 31, 1999, the date when the warrants will expire unless they
are again extended. If all the warrants should be exercised, the proceeds to th
Company would enable the Company to pay its anticipated operating expenses and
to participate in the drilling of at least two exploratory wells in 1999. If the
Company amends the terms of its public offering and completes the sale of at
least 400,000 shares, the anticipated minimum amount of the offering, the
Company would receive gross proceeds to approximately $100,000. We can make no
assurances as to whether any of the warrants will be exercised or whether we
will be able to successfully complete any portion of our anticipated offering.
Unless a substantial portion of the outstanding warrants are exercised or
at least the minimum offering in the anticipated offering is completed or we
sell our interests in the Bali and Fiji prospects, we do not believe that our
available cash will be sufficient to pay all of our anticipated general and
administrative expenses, capital lease costs and anticipated drilling expenses
over the next 12 months. As a result we may be unable to participate in drilling
any additional exploratory or development wells on the Horsethief Canyon
prospect or other nearby prospects. If we are able to raise additional capital
we will use the proceeds to pay our ongoing operating expenses and to
participate in additional drilling. To fund the anticipated near term capital
shortfall, we may accept loans from management or other affiliates, in addition
to the line of credit referred to above. Assuming sufficient capital resources
become available, we will continue to seek to acquire interests in other oil o
natural gas properties.
7
<PAGE>
We do not have any employees and instead we use consultants for matters
pertaining to drilling, property evaluations and administration. We do not
presently contemplate hiring employees during the next 12 months.
Year 2000 Considerations. We have considered the impact of Year 2000 issues
on our computer system and applications and developed a remediation plan.
Because we are a small company and use computer systems and applications owned
by our consultants, we do not anticipate that we will incur any material costs
in remediating potential Year 2000 problems. We did not incur any expenses for
such purposes in 1998 or during the first quarter. The Company's consultants
have confirmed to the Company tha Year 2000 issues on their systems will be
detected and remediated by the middle of 1999. We are unable to assess whether
Year 2000 issues may affect others in the oil and gas industry with whom we may
have operating agreements or other arrangements, such as oil or gas purchasers,
pipeline operators, drilling contractors, governmental agencies or others.
Problems experienced by such other entities could adversely affect our business.
8
<PAGE>
PART II Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 - Financial Data Schedule
During the quarter ended March 31, 1999, the Registrant did
not file any reports on Form 8-K.
9
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FAN ENERGY INC.
Signatures Title Date
/s/ George H. Fancher, Jr. Chief Operating Officer; May 17, 1999
- -------------------------- and Chairman of the Board
George H. Fancher, Jr.
/s/ Rex Utsler Chief Financial Officer May 17, 1999
- --------------
Rex Utsler
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTER ENDED MARCH 31, 1999
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 23
<SECURITIES> 0
<RECEIVABLES> 19
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 43
<PP&E> 2,022
<DEPRECIATION> 1,279
<TOTAL-ASSETS> 789
<CURRENT-LIABILITIES> 128
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 651
<TOTAL-LIABILITY-AND-EQUITY> 789
<SALES> 21
<TOTAL-REVENUES> 21
<CGS> 1
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 21
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (43,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (43,000)
<EPS-PRIMARY> (.004)
<EPS-DILUTED> (.004)
</TABLE>
