Quarterly Report for Small Business Issuers Subject
To the 1934 Act Report Requirements
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarter Ended September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
Commission File Number 333-47699
FAN ENERGY INC.
--------------------------------------------
(Name of Small Business Issuer in its charter)
Nevada 77-0140428
--------------------------- -------------------
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
1801 Broadway, Suite 720, Denver, Colorado 80202
- ------------------------------------------ --------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (602) 483-8848
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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 [ ]
Number of shares outstanding for each of the issuer's classes of common
equity, as of the latest practicable date.
$.01 par value common stock 10,051,704 shares as of September 30, 1999.
<PAGE>
FAN ENERGY INC.
FORM 10-QSB
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - September 30, 1999 and December 31, 1998 3
Statements of Operations - Quarter ended and nine months ended
September 30, 1999 and September 30, 1998 4
Statements of Cash Flows - Nine months ended September 30, 1999
and September 30, 1998 5
Notes to Financial Statements 6
Item 2. Management's Plan of Operation 7-8
PART II. OTHER INFORMATION
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 9
2
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FAN ENERGY INC.
(A Development Stage Company)
BALANCE SHEETS
ASSETS
September 30, 1999 December 31, 1998
------------------ -----------------
(Unaudited)
<S> <C> <C>
CURRENT ASSET
Cash ........................................................... $ 7,889 $ 15,875
Accounts receivable, net ....................................... 42,534 --
----------- -----------
Total Current Asset ........................................ 50,423 15,875
OIL AND GAS PROPERTIES, net .................................... 660,250 690,584
DEFERRED OFFERING COSTS ........................................ 15,356 --
----------- -----------
$ 726,029 $ 706,459
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ............................................... $ 55,308 $ 1,736
Due to shareholder ............................................. 20,500 --
Loan payable ................................................... 40,000 --
----------- -----------
Total Current Liabilities .................................. 115,808 1,736
COMMITMENTS AND CONTINGENCIES
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 development stage ............... (1,750,287) (1,655,785)
Additional paid-in capital stock options ....................... 100,500 100,500
----------- -----------
610,221 704,723
----------- -----------
$ 726,029 $ 706,459
=========== ===========
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
FAN ENERGY INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
Cumulative
Amounts from
Three Months Ended Sept. 30, Nine Months ended Sept. 30, Jan. 1, 1997 to
1999 1998 1999 1998 Sept. 30, 1999
---- ---- ---- ---- ---------------
<S> <C> <C> <C> <C> <C>
REVENUES
Oil and gas production ................. $ 40,486 $ -- $ 103,486 $ -- $ 103,486
------------ ------------ ------------ --------- ------------
OPERATING EXPENSES
Lease operating expenses ............... 6,112 -- 15,363 -- 15,363
Depreciation, depletion and amortization 31,334 -- 89,096 -- 89,096
General and administrative expenses .... 41,425 25,315 92,078 188,778 504,963
Impairment of oil and gas properties ... -- 849,260 -- 849,260 1,257,702
Interest ............................... 1,338 -- 1,477 -- 7,724
------------ ------------ ------------ --------- ------------
63,913 136,268 198,014 1,038,038 1,858,552
------------ ------------ ------------ --------- ------------
OTHER INCOME
Interest ............................... -- 1,042 26 5,795 4,779
------------ ------------ ------------ --------- ------------
NET (LOSS) .............................. $ (23,427) $ (873,533) $ (94,502) $ (1,032,243) $ (1,750,287)
============ ============ ============ ========= ============
NET (LOSS) PER COMMON SHARE ............. $ (.002) $ (.09) $ (.01) $ (10) $ (.17)
============ ============ ============ ========== ============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING ............ 10,051,704 10,051,704 10,051,704 10,051,704 10,051,704
=========== ============ ============ ========== ============
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
FAN ENERGY INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Cumulative
Amounts from
For the nine months ended Sept 30, Jan. 1, 1997 to
1999 1998 Sept. 30, 1999
---- ---- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) .......................................................... $ (94,502) $(1,032,243) $(1,750,287)
Adjustments to reconcile net (loss) to net
cash provided by operating activities
Depreciation, depletion and amortization ............................ 89,096 -- 89,096
Impairment of oil and gas properties ................................ -- 849,260 1,257,702
Stock options ....................................................... -- -- 102,832
Stock for services .................................................. -- 107,500 107,500
Changes in assets and liabilities
Increase in accounts payable ................................... 53,572 64,922 55,308
Increase in due to shareholder ................................. 20,500 -- 20,500
Increase in loan payable ....................................... 40,000 -- 40,000
Increase in accounts receivable, net ........................... (42,534) -- (42,534)
Increase in deferred offering costs ............................ (15,356) (46,646) (15,356)
----------- ----------- -----------
Net cash (used) provided by operating activities .................... 50,776 (57,207) (135,239)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for oil and gas properties ........................... (58,762) (426,950) (1,721,548)
----------- ----------- -----------
Net cash (used) in investing activities ............................. (58,762) (426,950) (1,721,548)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of common stock warrants ................ -- 413,000 413,000
Proceeds from sale of common stock ............................. -- -- 1,500,000
Cash paid for offering costs ................................... -- -- (48,324)
----------- ----------- -----------
Net cash provided by financing activities ........................... -- 413,000 1,864,676
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH ..................................... (7,986) (71,157) 7,889
CASH, BEGINNING OF PERIODS .......................................... 15,875 424,717 --
----------- ----------- -----------
CASH, END OF PERIODS ................................................ $ 7,889 $ 353,560 $ 7,889
=========== =========== ===========
</TABLE>
5
<PAGE>
FAN ENERGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
The accompanying interim financial statements of FAN Energy, Inc. (the
"Company") are unaudited. In the opinion of management, the interim data
includes all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results for the interim period.
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 the year ended December 31, 1998. The
current interim periods 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 nine months ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999.
6
<PAGE>
FAN ENERGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
ITEM 2. MANAGEMENT'S PLAN OF OPERATION
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 not 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 during the first quarter of 1999 from a
successful exploratory natural gas well in the Bali prospect in the Sacramento
Basin of central California. The well has generated $ 93,161 at an average price
of $ 1.94 per MCF during the nine months ended September 30, 1999 and
approximately $ 37,900 at an approximate average price of $ 2.14 per MCF during
the quarter ended September 30, 1999. We anticipate production and gas prices on
the well during the next three months to be comparable to the three months for
the quarter ended September 30, 1999. The producing well 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 the producing well.
In late 1998 we participated in drilling a successful oil well in the Horsethief
Canyon prospect, in which we hold a 20% working interest. The well did not
produce revenue in the first quarter of 1999. During the six months ended
September 30, 1999, the well produced 3,644 barrels of oil which was sold at an
average price of $ 18.00 per barrel. We realized $ 9,552 after taxes and fees
from our 16% profit interest in the well during the six months ended September
30, 1999. We anticipate the production and the oil prices on the well during the
next quarter to be comparable to this quarter which produced 752 barrels of oil
at an average price of $ 21.20 per barrel. We decided to farm out as much
interest as was required to carry our remaining interest to the casing point in
our Hoursethief Canyon Prospect. We have agreed to sell a 10% working interest
in the spacing unit for the next well for $ 25,000, which should be sufficient
to fund the remaining 7.8125% working interest we have in the subject well to
the casing point. If we elect to complete the well, it will owe an additional $
16,100. After payout, we will have a 9.21875% working interest until the well
recovers 300% of drilling and completion costs afterwhich our interest will
reduce to 8.59375%. We have agreed to be subject to the balance of the agreement
pertaining to the 10% interest sold. We will receive 20% of the prospect fee of
$ 27,700 after the first option well on the next seven locations drilled.
Because we decided to discontinue further exploration of our prospects in the
Sacramento Basin, 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 gas properties was reduced to the approximate amount of the present
value of the oil and natural gas reserves on these properties. We depleted our
natural gas well in Bali $ 83,557 and our oil well in Horsethief $ 5,539
totaling $ 89,096 during the nine months ended September 30, 1999.
We had general and administrative expenses of $ 92,000 during the first nine of
1999, compared to $ 188,778 in the prior year. The decrease was mainly due to
non-cash equity compensation of 215,000 common shares to directors and officers
during the first half of 1998 at an estimated value of $.50 per share or $
107,500. The value of the compensation was determined to be $.20 per share or $
43,000 subsequent to the June 30, 1998 quarterly report. There was no non-cash
equity compensation during the first nine months of 1999. We also had cash
expenditures of approximately $ 60,000 for geophysical and lease extension
costs, which were capitalized. We expect to incur around $ 40,000 of general and
administrative expenses during the last quarter of the 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.
7
<PAGE>
At September 30, 1999 we had approximately $ 7,900 in cash and $ 42,500 in
receivables. At November 12, 1999 we had approximately $ 22,400 in cash and $
15,500 in receivables compared to around $ 16,000 in cash and no receivables at
December 31, 1998. We anticipate that our revenue from the production of the one
producing natural gas well on the Bali prospect will be approximately $ 10,000
monthly during the remainder of 1999, depending upon the production rates and
applicable natural gas prices. We believe the production from the oil well on
the Horsethief prospect will approximate $ 1,000 monthly during the remainder of
1999, depending upon the production rates and applicable oil prices.
During the second quarter, we obtained a $ 100,000 line of credit, which was
secured by the personal guarantee of our Chairman. At September 30, 1999 and
November 12, 1999, we had outstanding loan balances of $ 40,000 and $ 30,000,
respectively. In March our President loaned us $ 20,500, which was used to repay
amounts owed Fancher Resources, LLC and other accounts payable. We will require
additional capital resources in order for us to complete the 1999 drilling and
exploration activities 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 with an anticipated offering date early
during the year 2000. The revised terms of the offering have not been
determined. On October 31, 1999, 1,180,000 warrants to purchase up to 1,180,000
shares of common stock expired. No warrants were exercised. Concurrent with the
public offering, we extended the warrants to December 30, 1999. If all the
warrants are exercised, of which there is no assurance, we would receive
approximately $ 295,000 by December 30, 1999, the date when the warrants will
expire unless they are again extended. If all the warrants should be exercised,
the proceeds to the 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. 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 the minimum offering in the anticipated offering is completed or we sell
our interests in the Sacramento Basin in California, 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 guaranteed by the Chairman. Assuming sufficient capital
resources become available, we will continue to seek to acquire interest in
other oil or natural gas properties.
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 1999. The Company's consultants have confirmed to the
Company that Year 2000 issues on their systems will be detected and remediated
by the end of the year. 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 and 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
During the quarter ended September 30, 1999, the Registrant did not file
any reports on Form 8-K.
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
- ---------- ----- ----
- --------------------------- Chief Operating Officer; and November 15, 1999
George H. Fancher Jr. Chairman of the Board
- --------------------------- Chief Financial Officer November 15, 1999
Rex Utsler
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTER ENDED SEPTEMBER 30, 1999
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 7,889
<SECURITIES> 0
<RECEIVABLES> 42,534
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 50,423
<PP&E> 660,250
<DEPRECIATION> 0
<TOTAL-ASSETS> 726,029
<CURRENT-LIABILITIES> 115,808
<BONDS> 0
0
0
<COMMON> 2,260,008
<OTHER-SE> 100,500
<TOTAL-LIABILITY-AND-EQUITY> 726,029
<SALES> 103,486
<TOTAL-REVENUES> 103,486
<CGS> 0
<TOTAL-COSTS> 198,014
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,477
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (94,502)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (94,502)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
