SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the quarterly period ended June 30, 2000.
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the transition period from to
---------------------- ------------------
Commission file number 333-47699
Fan Energy Inc.
(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
-------------------------------------------------
(Address of principal executive offices) (Zip Code)
(303) 296-6600
-------------------------
(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 July 31, 2000, the Registrant had outstanding 9,451,492 shares of common
stock, par value $.00l.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE>
FAN ENERGY INC.
FORM 10-QSB
JUNE 30, 2000
Table of Contents
Part I Financial Information
Item 1. Financial Statements
Balance Sheets as of December 31, 1999 and
June 30, 2000 3
Statements of Operations for the Three Months and Six Months
Ended June 30, 1999 and 2000
and cumulative amounts from inception 4-5
Statements of Cash Flows for the Six Months Ended
June 30, 1999 and 2000
and cumulative amounts from inception 6
Notes to Financial Statements 7
Item 2. Management's Plan of Operation 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 10
Item 6. Exhibits and Reports on Form 8-K 11
Signatures
2
<PAGE>
PART I
Item 1. Financial Statements
<TABLE>
<CAPTION>
FAN ENERGY INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
December 31, June 30, 2000
1999 (Unaudited)
------------ -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash .............................................................. $ 11,290 $ 39,617
Accounts receivable ............................................... 46,147 39,421
----------- -----------
Total Current Assets .......................................... 57,437 79,038
OIL AND GAS PROPERTIES, net ........................................... 327,589 259,709
DEFERRED OFFERING COSTS ............................................... -- 16,314
----------- -----------
$ 385,026 $ 355,061
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade .......................................... $ 8,397 $ 26,717
- related ........................................ 20,500 20,500
Note payable - bank ............................................... 20,000 --
----------- -----------
Total Current Liabilities ..................................... 48,897 47,217
----------- -----------
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 - 9,451,492 shares .................. 9,452 9,452
Additional paid-in capital ........................................ 2,317,509 2,317,509
Deficit accumulated during the developmental stage ................ (2,091,332) (2,119,617)
Additional paid-in capital stock options .......................... 100,500 100,500
----------- -----------
336,129 307,844
----------- -----------
$ 385,026 $ 355,061
=========== ===========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
FAN ENERGY INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
Six Months Ended Cumulative
June 30, Amounts from
--------------------------- Jan. 1, 1997 to
1999 2000 June 30, 2000
---- ---- -----------------
<S> <C> <C> <C>
REVENUE
Oil and gas production .............................. $ 63,000 $ 80,904 $ 233,736
------------ ------------ ------------
OPERATING EXPENSES
Lease operating expenses ............................ 9,251 2,874 34,505
Depreciation, depletion and amortization ............ 57,762 80,421 205,359
General and administrative .......................... 68,398 25,618 547,127
Impairment of oil and gas properties ................ -- -- 1,557,702
Interest ............................................ 139 276 8,660
------------ ------------ ------------
135,550 109,189 2,353,353
------------ ------------ ------------
NET (LOSS) .............................................. $ (72,550) $ (28,285) $ (2,119,617)
============ ============ ============
NET (LOSS) PER COMMON SHARE -
Basic and Diluted ................................... $ (.01) $ (.003) $ (.28)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING -
Basic and Diluted ................................... 10,051,704 9,451,492 7,592,286
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
FAN ENERGY INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
Three Months Ended
June 30,
--------------------------------
1999 2000
<S> <C> <C>
REVENUE
Oil and gas production ..................................... $ 42,338 $ 39,534
------------ ------------
OPERATING EXPENSES
Lease operating expenses ................................... 8,043 1,224
Depreciation, depletion and amortization ................... 36,352 35,225
General and administrative ................................. 26,999 9,841
Impairment of oil and gas properties ....................... -- --
Interest ................................................... 139 276
------------ ------------
71,533 46,566
------------ ------------
NET (LOSS) ..................................................... $ (29,195) $ (7,032)
============ ============
NET (LOSS) PER COMMON SHARE -
Basic and Diluted .......................................... $ (.003) $ (.001)
============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING -
Basic and Diluted .......................................... 10,051,704 9,451,492
============ ============
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
FAN ENERGY INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
Six Months Ended Cumulative
June 30, Amounts from
--------------------- Jan. 1, 1997 to
1999 2000 June 30, 2000
---- ---- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATNG ACTIVITIES
Net (loss) ..................................................... $ (72,550) $ (28,285) $(2,119,617)
Adjustments to reconcile net (loss) to net cash
provided (used) by operating activities
Depreciation, depletion and amortization ....................... 57,762 80,421 205,359
Impairment of oil and gas properties ........................... -- -- 1,557,702
Stock options .................................................. -- -- 102,832
Stock for services and payables ................................ -- -- 137,953
Forgiveness of payables by officer/director .................... -- -- 22,000
Changes in assets and liabilities
Increase in accounts payable ............................... 49,103 18,321 47,218
Decrease (increase) in accounts receivable ................. (56,483) 6,726 (39,421)
Other ...................................................... 20,500 (16,314) (16,314)
----------- ----------- -----------
Net Cash Provided (Used) by Operating Activities ............... (1668) 60,869 (102,288)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for oil and gas properties ........................... (50,663) (12,542) (1,722,771)
----------- ----------- -----------
Net Cash (Used) in Investing Activities ........................ (50,663) (12,542) (1,722,771)
----------- ----------- -----------
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 ................................... -- -- (48,324)
Proceeds from short term borrowings ............................ 90,000 -- 90,000
Repayment of short term borrowings ............................. -- (20,000) (90,000)
----------- ----------- -----------
Net Cash (Used) Provided by Financing Activities ............... 90,000 (20,000) 1,864,676
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH .................................... 37,669 28,327 39,617
CASH, BEGINNING OF PERIODS ......................................... 15,875 11,290 --
----------- ----------- -----------
CASH, END OF PERIODS ............................................... $ 53,544 $ 39,617 $ 39,617
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
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, 1999. 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 June 30, 2000 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000.
7
<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 $80,904 of revenue in the first half of 2000 compared to
$63,000 in the first half of 1999. The revenue was from our interest in the
Molucca Well in the Sacramento Basin of central California. The increased
revenue was due to substantially increased prices we received, as production has
begun to drop off on this well. We anticipate that production from the Starkey
formation in the Molucca #1-35 well will reach its economic limit before the end
of the year, due to a significant increase in water production. When this
occurs, the Molucca #1-35 well will be recompleted in the Winters formation.
This zone should produce gas at comparable rates to the Starkey zone, based on a
comparison of the electric logs from this well to logs from other Winters
producing wells in the area. We expect gas prices to remain strong for the
remainder of the year at approximately $3.00 per MCF.
This producing natural gas well 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.
We hold an undivided net interest equal to approximately 20% in a 5,760
acre prospect located in Sweetwater County, Wyoming. Two exploratory wells have
been drilled on the prospect, with the first well completed as an apparent oil
producer and the second as a marginally productive natural gas well. Both wells
were shut-in for the winter months of 1999 and early 2000 because of the
weather. The operator of the well, Fancher Oil LLC, expects additional wells to
be drilling on this prospect in the second half of 2000 and thereafter. Because
of our limited financial resources, it is likely that we will farm-out all or a
portion of our interest in these properties for development by others, with the
expectation that we would receive a reduced interest in future wells, and most
of our share of drilling and development expenses would be paid by other
participants.
We had general and administrative expenses of $25,618 in the first half,
compared to $68,398 in the prior year. We decided not to pay management fees and
reimbursement for office space to Fancher Oil Company and Arizona Corporate
Management during 2000 until we are able to reasonably afford their services.
Our expenses were significantly less during the first half of 2000 as payments
were made to consultants on an as-needed basis only.
At June 30, 2000, the Company had $39,617 in cash, compared to $11,290 at
December 31, 1999.
During 1999, we obtained a $150,000 line of credit which was secured by the
personal guarantee of our President. The loan was used to repay amounts owed to
Fancher Oil, LLC and other accounts payable and to fund some operating expenses.
The principal balance owed on the loan at December 31, 1999 was $20,000 and was
paid off during the first quarter of 2000.
The Company will need to raise additional financing over the next twelve
months to continue drilling and pay its general and administrative expenses. In
May 2000, the Company commenced a public offering of a minimum of 400,000 units,
up to a maximum of 3.0 million unit at $0.10 per unit. The offering has not been
completed as of the date of this report.
8
<PAGE>
Each unit includes one share of common stock and one warrant for one share.
In 2000, the Company extended to October 31, 2000, the expiration date for
outstanding warrants pursuant to which holders may purchase up to 1,180,000
shares of common stock at $.15 per share. The Company anticipates that at least
a portion of outstanding warrants will be exercised by warrant holders. If all
outstanding warrants are exercised, of which there is no assurance, the Company
would receive a total of $ 177,000 by October 31, 2000, the date of expiration.
No assurances can be made as to whether any of the warrants will be exercised.
The Company did not raise any money from the sale of securities during the last
15 months.
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 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. Because we are a small company and use computer
systems and applications owned by our consultants, we did not incur any material
costs in remediating potential Year 2000 problems. Our consultants have
confirmed to us that Year 2000 issues on their systems were detected and
remediated. We do not believe that Y2K issues affected 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.
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
9
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 - Financial Data Schedule
During the quarter ended June 30, 2000, 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
---------- ----- ----
/s/ George H. Fancher, Jr. Chief Operating Officer; August 21, 2000
-------------------------- and Chairman of the Board
George H. Fancher, Jr.
10
