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 June 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 June 30, 1999.
<PAGE>
FAN ENERGY INC.
FORM 10-QSB
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - June 30, 1999 and December 31, 1998 3
Statements of Operations - Quarter ended and six months ended
June 30, 1999 and June 30, 1998 4
Statements of Cash Flows - Six months ended June 30, 1999
and June 30, 1998 5
Notes to Financial Statements 6 - 7
Item 2. Management's Plan of Operation 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
June 30, 1999 December 31,
(Unaudited) 1998
------------- -----------
<S> <C> <C>
CURRENT ASSET
Cash ....................................................... $ 53,544 $ 15,875
Accounts receivable, net ................................... 56,483 --
----------- -----------
Total Current Asset .................................... 110,027 15,875
OIL AND GAS PROPERTIES, net ................................ 693,010 690,584
DEFERRED OFFERING COSTS .................................... 15,479 --
----------- -----------
$ 818,516 $ 706,459
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable - bank ........................................ $ 90,000 $ --
Accounts payable ........................................... 75,843 1,736
Due to shareholder ......................................... 20,500 --
----------- -----------
Total Current Liabilities .............................. 186,343 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 ........... (1,728,335) (1,655,785)
Additional paid-in capital stock options ................... 100,500 100,500
----------- -----------
632,173 704,723
----------- -----------
$ 818,516 $ 706,459
=========== ===========
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
FAN ENERGY INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
Cumulative
Amounts from
Three Months Ended June 30, Six Months ended June 30, Jan. 1, 1997 to
1999 1998 1999 1998 June 30, 1999
---- ---- ---- ---- ---------------
<S> <C> <C> <C> <C> <C>
REVENUES
Oil and gas production ...................... $ 42,338 $ -- $ 63,000 $ -- $ 63,000
------------ ------------ ------------ ------------ -----------
OPERATING EXPENSES
Lease operating expenses .................... 8,043 -- 9,251 -- 9,251
Depreciation, depletion and amortization .... 36,352 -- 57,762 -- 57,762
General and administrative expenses ......... 26,999 136,268 68,424 163,463 465,013
Impairment of oil and gas properties ........ -- -- -- -- 1,257,702
Interest .................................... 139 -- 139 -- 6,386
------------ ------------ ------------ ------------ -----------
71,533 136,268 135,576 163,463 1,796,114
------------ ------------ ------------ ------------ -----------
OTHER INCOME
Interest .................................... -- 1,704 26 4,753 4,779
------------ ------------ ------------ ------------ -----------
NET (LOSS) ................................... $ (29,195) $ (134,564) $ (72,550) $ (158,710) $(1,728,335)
============ ============ ============ ============ ===========
NET (LOSS) PER COMMON SHARE .................. $ (.003) $ (.02) $ (.01) $ (.02) $ (.26)
============ ============ ============ ============ ===========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING ................. 10,051,704 7,986,704 10,051,704 7,986,704 6,641,871
============ ============ ============ ============ ============
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
FAN ENERGY INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Cumulative
Amounts from
For the six months ended June 30, Jan. 1, 1997 to
1999 1998 June 30, 1999
---- ---- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) .......................................................... $ (72,550) $ (158,710) $(1,728,335)
Adjustments to reconcile net (loss) to net
cash provided by operating activities
Depreciation, depletion and amortization ............................ 57,762 -- 57,762
Impairment of oil and gas properties ................................ -- -- 1,257,702
Stock options ....................................................... -- -- 102,832
Stock for services .................................................. -- 107,500 93,000
Changes in assets and liabilities
Increase in accounts payable ................................... 49,103 2,753 50,839
Increase in due to shareholder ................................. 20,500 -- 20,500
(Increase) in accounts receivable .............................. (56,483) -- (56,483)
----------- ----------- -----------
Net cash (used) by operating activities ............................. (1,668) (48,457) (202,183)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for oil and gas properties ........................... (50,663) (220,209) (1,698,949)
----------- ----------- -----------
Net cash (used) in investing activities ............................. (50,663) (220,209) (1,698,949)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank loan ........................................ 90,000 -- 90,000
Proceeds from exercise of common stock warrants ................ -- -- 413,000
Proceeds from sale of common stock ............................. -- -- 1,500,000
Cash paid for offering costs ................................... -- (45,446) (48,324)
----------- ----------- -----------
Net cash provided (used) by financing activities .................... 90,000 (45,446) 1,954,676
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH ..................................... 37,669 (314,112) 53,544
CASH, BEGINNING OF PERIODS .......................................... 15,875 424,717 --
----------- ----------- -----------
CASH, END OF PERIODS ................................................ $ 53,544 $ 110,605 $ 53,544
=========== =========== ===========
</TABLE>
5
<PAGE>
FAN ENERGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 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 six months ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999.
6
<PAGE>
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 generated $20,661 at an average price of
$1.68 per MCF during the first quarter of 1999 and $34,564 at an average price
of $1.95 per MCF during the quarter ended June 30, 1999. The well has generated
a total of $55,225 at an average price of $1.82 per MCF for the six months
ended June 30, 1999. We anticipate production and gas prices on the well during
the next six months to be comparable to the first six months of the year. 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 three months ended June
30, 1999, the well produced 2,892 barrels of oil which was sold at an average
price of $17.17 per barrel. We realized $7,223 after taxes and fees from our
16% profit interest in the well during the three months ended June 30, 1999. We
anticipate the production will be less and the oil prices on the well during the
next quarter to be higher in the next quarter. We anticipate one or two
additional wells may be drilled this year on the prospect. Our anticipated
drilling and completion expenses on the 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 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 had depletion
charge for our natural gas well in Bali of $53,367 and $4,396 for our oil well
in Horsethief, totaling $57,763 during the six months ended June 30, 1999.
We had general and administrative expenses of $68,424 during the first half of
1999, compared to $163,463 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 six 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 $75,000 of general and
administrative expenses during the last half 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 June 30, 1998 we had approximately $54,000 in cash and $56,000 in
receivables. At August 9, 1999 we had approximately $10,000 in cash and $ 12,000
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 to
$12,000 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 range between $1,000 to $2,000 monthly
during the remainder of 1999, depending upon the production rates and applicable
oil prices.
During the second quarter, we obtained a $150,000 line of credit, which was
secured by the personal guarantee of our Chairman. At June 30, 1999 and August
9, 1999, we had outstanding loan balances of $90,000 and $50,000, 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 and reduce the offering price to $.25 per
share, which offering is expected to recommence during the third quarter of
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. On July 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 October 31, 1999. If all the warrants are exercised, of
which there is no assurance, we would receive approximately $295,000 by October
31, 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 third quarter 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 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 June 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 August __, 1999
George H. Fancher Jr. Chairman of the Board
- ----------------------------- Chief Financial Officer August __, 1999
Rex Utsler
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTER ENDED JUNE 30, 1999
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 54
<SECURITIES> 0
<RECEIVABLES> 56
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 110
<PP&E> 2,008
<DEPRECIATION> 1,315
<TOTAL-ASSETS> 819
<CURRENT-LIABILITIES> 186
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 622
<TOTAL-LIABILITY-AND-EQUITY> 819
<SALES> 63
<TOTAL-REVENUES> 63
<CGS> 9
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 57
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (73)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (73)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
