SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
<P>
---------------------------------
<P>
AMENDMENT NO. 1 TO
FORM 8-K
<P>
---------------------------------
<P>
CURRENT REPORT
<P>
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
<P>
Date of Report (Date of earliest event reported):
October 5, 2000
<P>
PANGEA PETROLEUM CORPORATION
<P>
(Exact Name of Registrant as Specified in Its Charter)
<P>
Colorado
<P>
(State or Other Jurisdiction of Incorporation)
<P>
<TABLE>
<S> <C> <C>
0-29585 76-0635938
--------- ----------
(Commission File Number) (IRS Employer Identification No.)
<P>
6776 SW Freeway, Suite 620, Houston, Texas 77074
------------------------------------------ ----------
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
<P>
(713) 952-1473
<P>
(Registrant's Telephone Number, Including Area Code)
<P>
6666 Harwin Drive, Suite 545, Houston, Texas 77036
<P>
(Former Name or Former Address, if Changed Since Last
Report)
<P>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
<P>
Pursuant to a Stock Purchase Agreement and Share Exchange
(the "Agreement") effective October 5, 2000, Pangea
Petroleum Corporation, a Colorado Corporation (Pangea"the
"Company"), received all of the outstanding shares of Mass
Energy, Inc. a Texas Corporation ("Mass"), whereby Mass
became a wholly owned subsidiary of Pangea in consideration
for the issuance of 2,000,000 ($0.001 par value per share)
shares of restricted common stock of Pangea to Randall W.
Massey, the sole Mass shareholder. Within twenty (20)
working days after the closing of this transaction, Pangea
is required to file an S-4 Registration Statement with the
Securities and Exchange Commission to register the Pangea
shares transferred in this Agreement. Upon effectiveness of
the S-4 registration statement, the shares issued to Randall
W. Massey shall be unrestricted. Until such time as the
registration statement is deemed effective, such shares
shall be "restricted" for one year from the date of issuance
in accordance with Rule 144 of the Securities Act of 1933.
<P>
After the closing of the Agreement, the directors of Mass
will be Randall W. Massey and C. Scott Massey. Randall W.
Massey shall be the President, Chief Executive Officer and
Secretary of Mass and C. Scott Massey shall be the Chief
Financial Officer of Mass. In addition, Randall W. Massey
signed a two year employment agreement with Mass to serve
as its President as well as Executive Vice President and
Director of Pangea. The following sets forth the
background for both Randall W. Massey and C. Scott Massey:
<P>
RANDALL W. MASSEY, 46, was appointed as Executive Vice
President and a Director of Pangea in October 2000 and
President, Chief Executive Officer and Secretary of Mass on
January 9, 1989. Mr. Massey began his career in the oil
industry in 1980 as an independent landman. In 1984, he
joined a small exploration and production company, Natural
Energy, Inc., as Vice President where he concentrated on
deal making and the associated financing. He established M
& R Exploration in 1989, where he served as President. This
company grew thru exploration and field acquisitions to more
than $30 million in assets. In 1997, Mr. Massey sold this
company, with the remaining company being Mass Energy.
Since such time, Mr. Massey has operated such company. Mr.
Massey graduated from the University of Houston in 1979 with
a Bachelor of Science Degree in Pharmaceutical Sciences.
<P>
C. SCOTT MASSEY, 48, was appointed as Chief Financial
Officer of Mass Energy on January 9, 1989. Mr. Massey has a
BBA in Accounting, from the University of Texas and a law
degree from the University of Houston. Mr. Massey started
his career working for KPMG Peat Marwick in 1977 and took
early retirement in 1998, after 13 years as a Partner.
During the years that he worked for KPMG, ten of those were
in the Houston Office (Oil and Gas Group). Mr. Massey was
the lead Partner for Murphy Oil and Crystal Oil Co. while at
KPMG and was also on the Board of Directors at Applied
Snubbing Technology (Cudd Pressure Control). Mr. Massey has
been in private practice since 1998, in Shreveport,
Louisiana.
<P>
The Acquisition was approved by the unanimous consent of the
Board of Directors of the Company and Mass on October 5,
2000. The Board of Directors of Pangea believes that this
transaction will advance the interests of the Company by
adding valuable oil and natural gas leases and associated
drilling opportunities to its asset base. Also, the
addition of Mr. Massey and the Mass Energy staff will allow
the Company to undertake a much broader and more extensive
energy development program.
<P>
ITEM 7. FINANCIAL STATEMENTS
<P>
The audited consolidated financial statements for the years
ending December 31, 1999 and 1998, reviewed consolidated
financial statements for the quarter ending March 31, 2000
and the pro forma financial statements are filed herewith.
<P>
PANGEA PETROLEUM CORPORATION
<P>
UNAUDITED PROFORMA CONSOLIDATED
FINANCIAL STATEMENTS
<P>
Index
<P>
Financial Statements:
<P>
Unaudited Proforma Consolidated Balance Sheets - 9/30/00
<P>
Unaudited Proforma Statements of Operations - Year Ended
12/31/99
<P>
Unaudited Proforma Statements of Operations - Nine Months
Ended
09/30/00
<P>
Notes to Unaudited Proforma Consolidated Financial
Statements
<P>
<P>
<TABLE>
Pangea Petroleum Corporation
<P>
Unaudited Proforma Consolidated Balance Sheet
<P>
September 30, 2000
<S> <C> <C> <C> <C>
Pangea Mass
Petroleum Energy, Proforma Proforma
Assets Corporation Inc. Adjustments Consolidated
-----------------------------------------------------------------------------------------
Current assets:
Cash $ 106,475 $ 494,888 $ 0 $ 601,363
Trade accounts receivable 5,115 261,969 0 267,084
Other receivables-
related party 7,800 7,724 0 15,524
Advances to affiliate 708,066 0 (708,066) 0
Prepaid expenses 0 4,249 0 4,249
--------------------------------------------------------------
Total current assets 827,456 768,830 (708,066) 888,220
--------------------------------------------------------------
Noncurrent receivables
from related parties 0 198,500 0 198,500
Real estate held for sale 46,642 0 0 46,642
<P>
Property and equipment:
(successful efforts) 73,245 1,067,483 0 1,140,728
Less accumulated depreciation,
depletion, and amortization 15,245 121,706 0 136,951
--------------------------------------------------------------
Net property and equipment 58,000 945,777 0 1,003,777
<P>
Investment in joint venture 12,500 0 0 12,500
Investment in Mass Energy, Inc. 160,153 0 (160,153) 0
Goodwill, net of accumulated
amortization of $1,969 76,781 0 0 76,781
Deferred tax asset 82,858 0 0 82,858
Other assets 1,988 1,640 0 3,628
--------------------------------------------------------------
Total assets $ 1,266,378 $ 1,914,747 $(868,219) $ 2,312,906
==============================================================
<P>
Liabilities and Stockholders' Equity
<P>
Liabilities:
Accounts payable and
accrued expenses 1,368 848,687 0 850,055
Accrued production and
royalties payable 0 11,541 0 11,541
Advances from affiliates 0 708,066 (708,066) 0
Advances from joint interest parties 0 161,300 0 161,300
Note payable 35,000 25,000 0 60,000
--------------------------------------------------------------
Total liabilities - current 36,368 1,754,594 (708,066) 1,082,896
--------------------------------------------------------------
Stockholders' equity:
Common stock, $.001 par value;
50,000,000 shares
authorized: 29,241,000 shares
issued and outstanding
at October 5, 2000 29,241 1,000 (1,000) 29,241
Additional paid-in capital 2,074,659 9,500 (9,500) 2,074,659
Retained earnings (deficit) (873,890) 149,653 (149,653) (873,890)
--------------------------------------------------------------
Total stockholders' equity 1,230,010 160,153 (160,153) 1,230,010
--------------------------------------------------------------
Total liabilities and
stockholders' equity $ 1,266,378 $ 1,914,747 $ (868,219) $ 2,312,906
==============================================================
<P>
See accompanying notes to unaudited proforma consolidated financial statements.
</TABLE>
<P>
<TABLE>
Pangea Petroleum Corporation
Unaudited Proforma Consolidated Statement of Operations
Year ended December 31, 1999
<S> <C> <C> <C> <C>
Pangea Mass
Petroleum Energy, Proforma Proforma
Corporation Inc. Adjustments Consolidated
-----------------------------------------------------------------------------------------
Revenues:
Oil and gas revenues $ 0 $ 835,201 $ 0 $ 835,201
Other 33,430 0 0 33,430
------------------------------------------------------------
Total revenues 33,430 835,201 0 868,631
<P>
Costs and expenses:
Cost of sales 59,393 0 0 59,393
Lease operating expenses 0 227,397 0 227,397
Severance taxes 0 59,396 0 59,396
Exploration/abandonment expense 0 59,713 0 59,713
General and administrative 409,704 258,017 0 667,721
Depreciation, depletion,
and amortization 12,874 315,085 0 327,959
------------------------------------------------------------
Total costs and expenses 481,971 919,608 0 1,401,579
------------------------------------------------------------
Operating income (loss) (448,541) (84,407) 0 (532,948)
<P>
Other income (expenses):
Interest income 0 14,582 0 14,582
Gain (loss) on the sale
of property 0 504,582 0 504,582
Interest expense (7,350) (541,349) 0 (548,699)
Other income 0 2,050 0 2,050
------------------------------------------------------------
Total other income (expenses) (7,350) (20,135) 0 (27,485)
------------------------------------------------------------
Net loss before provision for
federal income taxes (455,891) (104,542) 0 (560,433)
<P>
Income tax benefit 65,261 0 0 65,261
-------------------------------------------------------------
Net loss $ (390,630) $ (104,542) $ 0 $ (495,172)
=============================================================
<P>
See accompanying notes to unaudited proforma consolidated financial statements.
<P>
</TABLE>
<P>
<TABLE>
Pangea Petroleum Corporation
<P>
Unaudited Proforma Consolidated Statement of Operations
<P>
Nine months ended September 30, 2000
<S> <C> <C> <C> <C>
Pangea Mass
Petroleum Energy, Proforma Proforma
Corporation Inc. Adjustments Consolidated
-----------------------------------------------------------------------------------------
Revenues:
Oil and gas revenues $ 0 $ 0 $ 0 $ 0
Other 0 0 0 0
------------------------------------------------------------
Total revenues 0 0 0 0
<P>
Costs and expenses:
Lease operating expenses 0 0 0 0
Severance taxes 0 0 0 0
Exploration/abandonment expense 0 205,113 0 205,113
Impairment expense 73,236 0 0 73,236
General and administrative 353,122 149,361 0 502,483
Depreciation, depletion,
and amortization 4,440 13,539 0 17,979
------------------------------------------------------------
Total costs and expenses 430,798 368,013 0 798,811
------------------------------------------------------------
Operating income (loss) (430,798) (368,013) 0 (798,811)
<P>
Other income (expenses):
Interest income 0 1,795 0 1,795
Gain (loss) on the sale
of property 0 (986) 0 (986)
Loss on disposition
of equipment (54,023) 0 0 (54,023)
Interest expense 0 (240) 0 (240)
Other income 1,952 1,146 0 3,098
------------------------------------------------------------
Total other income (expenses) (52,071) 1,715 0 (50,356)
<P>
Net loss before provision for
federal income taxes (482,869) (366,298) 0 (849,167)
<P>
Income tax benefit 17,597 0 0 17,597
------------------------------------------------------------
Net loss $ (465,272) $ (366,298) $ 0 $ (831,570)
============================================================
<P>
See accompanying notes to unaudited proforma consolidated financial statements.
<P>
</TABLE>
<P>
Notes to Unaudited Proforma
Consolidated Financial Statements
<P>
(1) Basis of Presentation
<P>
The unaudited Proforma Consolidated Statement of Operations
for the nine months ended September 30, 2000, included the
unaudited historical results of operations for Pangea
Petroleum Corporation and Mass Energy, Inc. for the nine
months ended September 30, 2000, adjusted for the proforma
effects of the acquisition assuming the acquisition occurred
on January 1, 1999.
<P>
The unaudited Proforma Consolidated Statement of Operations
for the year ended December 31, 1999, included the audited
historical results of operations of Pangea Petroleum
Corporation and Mass Energy, Inc., adjusted for the proforma
effects of the acquisition assuming the acquisition occurred
on January 1, 1999.
<P>
The unaudited Proforma Balance Sheet at September 30, 2000,
included the unaudited position of Pangea Petroleum
Corporation and Mass Energy, Inc. as of September 30, 2000,
assuming the acquisition occurred on September 30, 2000,
adjusted for the proforma effects of the acquisition.
<P>
A) The capital accounts of Pangea Petroleum
Corporation had been adjusted as of September 30, 2000 to
report the effects of the acquisition (issuance of 2,000,000
shares of common stock to shareholders of Mass Energy,
Inc.), assuming the acquisition occurred on September 30,
2000.
<P>
B) Elimination entry was made to eliminate the
advances to affiliate on the books of Pangea Petroleum
Corporation and eliminate the advances from affiliate on the
books of Mass Energy, Inc.
<P>
MASS ENERGY, INC.
<P>
Index
<P>
Independent Auditors' Report
<P>
Financial Statements:
<P>
Balance Sheets - December 31, 1999 and 1998
<P>
Statements of Operations - Years ended December 31, 1999 and
1998
<P>
Statements of Stockholders' Equity - Years ended December
31, 1999 and 1998
<P>
Statements of Cash Flows - Years ended December 31, 1999
and 1998
<P>
Notes to Financial Statements
<P>
R. E. Bassie & Co., P.C.
Certified Public Accountants
A Professional Corporation
<P>
7171 Harwin Drive, Suite 306
Houston, Texas 77036-2197
Tel: (713) 266-0691 Fax: (713) 266-0692
E-Mail: [email protected]
<P>
Independent Auditors' Report
<P>
The Board of Directors and Stockholders
Mass Energy, Inc.:
<P>
We have audited the balance sheets of Mass Energy, Inc. as
of December 31, 1999 and 1998, and the related statements of
operations, stockholders' equity and cash flows for the
years then ended. These financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
<P>
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
<P>
In our opinion, the financial statements referred to above,
present fairly, in all material respects, the financial
position of Mass Energy, Inc. as of December 31, 1999 and
1998, and the results of its operations and its cash flows
for the years then ended, in conformity with generally
accepted accounting principles.
<P>
/s/ R. E. Bassie & Co., P.C.
<P>
Houston, Texas
September 6, 2000
<TABLE>
MASS ENERGY, INC.
<P>
Balance Sheets
<P>
December 31, 1999 and 1998
<S> <C> <C>
Assets 1999 1998
-------------------------
Current assets:
Cash $ 611,719 $ 221,337
Trade accounts receivable 109,189 798,758
Other receivables-related party 49,043 5,048
Prepaid expenses 438 2,864
----------------------------------
Total current assets 770,389 1,028,007
----------------------------------
Noncurrent accounts receivable (note 10) 198,500 288,200
<P>
Property and equipment: (successful efforts)
(note 4, 6) 321,088 8,520,584
<P>
Less accumulated depreciation, depletion,
and amortization 108,167 691,761
----------------------------------
Net property and equipment 212,921 7,828,823
<P>
Other assets 1,640 1,640
----------------------------------
Total assets $ 1,183,450 $ 9,146,670
===================================
Liabilities and Stockholders' Equity
<P>
Current liabilities:
Accounts payable and accrued expenses 192,736 1,012,279
Accrued production and royalties payable 51,037 200,572
Advances from joint interest parties (note 7) 388,226 0
---------------------------------
Total current liabilities 631,999 1,212,851
<P>
Note payable (note 5) 25,000 7,302,826
---------------------------------
Total liabilities 656,999 8,515,677
---------------------------------
Stockholders' equity:
Common stock, $1 par value; 100,000 shares authorized:
1,000 shares issued and outstanding at December 31,
1999 and 1998 1,000 1,000
Additional paid-in capital 9,500 9,500
Retained earnings 515,951 620,493
---------------------------------
Total stockholders' equity 526,451 630,993
<P>
Commitments and contingent liabilities (notes 8 and 9)
<P>
Total liabilities and stockholders'
equity $ 1,183,450 $ 9,146,670
==================================
See accompanying notes to financial statements.
</TABLE>
<P>
<TABLE>
MASS ENERGY, INC.
<P>
Statements of Operations
<P>
Years ended December 31, 1999 and 1998
<S> <C> <C>
1999 1998
----------------------------------
Oil and gas revenues $ 835,201 $ 2,335,778
<P>
Costs and expenses:
Lease operating expenses 227,397 490,241
Severance taxes 59,396 103,328
Exploration/abandonment expense 59,713 128,600
Depreciation, depletion, and amortization 315,085 617,263
General and administrative 258,017 478,924
----------------------------------
Total costs and expenses 919,608 1,818,356
----------------------------------
Operating income (loss) (84,407) 517,422
<P>
Other income (expenses):
Interest income 14,582 10,714
Gain (loss) on the sale of property 504,582 (53,497)
Interest expense (541,349) (793,466)
Other income 2,050 11,454
-----------------------------------
Total other income (expenses) (20,135) (824,795)
-----------------------------------
Net loss before provision for federal income taxes (104,542) (307,373)
<P>
Provision for federal income taxes (note 2) 0 0
-----------------------------------
Net loss $ (104,542) $ (307,373)
===================================
See accompanying notes to financial statements.
</TABLE>
<P>
<TABLE>
MASS ENERGY, INC.
<P>
Statements of Cash Flows
<P>
Years ended December 31, 1999 and 1998
<S> <C> <C>
1999 1998
-----------------------------------
Cash flows from operating activities:
<P>
Net loss $ (104,542) $ (307,373)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
<P>
Depreciation, depletion and amortization 315,085 617,263
Dry hole expense 59,713 128,600
(Gain) loss on sale of property and equipment (504,582) 53,497
<P>
(Increase) decrease in operating assets:
Accounts receivable 1,091,162 (753,626)
Noncurrent accounts receivable 89,700 (133,200)
Prepaid expenses 2,426 (772)
<P>
Increase (decrease) in operating liabilities:
Accounts payable and accrued liabilities (819,543) 908,161
Accrued production and royalties payable (149,535) 198,744
Advances from joint interest parties 388,226 0
-----------------------------------
Net cash provided by (used in) operating
activities 368,110 711,294
-----------------------------------
Cash flows from investing activities:
<P>
Purchases of property and equipment (8,286) (44,905)
Additions to oil and gas properties 0 (8,261,046)
Disposition of property and equipment 30,558
---------------------------------------
Net cash provided by (used in)
investing activities 22,272 (8,305,951)
---------------------------------------
Cash flows from financing activities:
<P>
Proceeds from note payable 0 7,302,826
--------------------------------------
Net cash provided by financing activities 0 7,302,826
--------------------------------------
Net increase (decrease) in cash 390,382 (291,831)
<P>
Cash at beginning of year 221,337 513,168
----------------------------------------
Cash at end of year $ 611,719 $ 221,337
========================================
Supplemental schedule of cash flow information:
Interest paid $ 554,100 $ 780,715
========================================
See accompanying notes to financial statements.
</TABLE>
<P>
<TABLE>
MASS ENERGY INC.
<P>
Statements of Stockholders' Equity
<P>
Years ended December 31, 1999 and 1998
<S> <C> <C> <C> <C> <C>
Additional Total
Common Stock paid-in Retained stockholders'
shares amount capital earnings equity
-----------------------------------------------------------------
Balance,
January 1, 1998 1,000 $ 1,000 $ 9,500 $ 927,866 $ 938,366
<P>
Net loss 0 0 0 (307,373) (307,373)
-----------------------------------------------------------------
Balance,
December 31, 1998 1,000 1,000 9,500 620,493 630,993
<P>
Net loss 0 0 0 (104,542) (104,542)
-----------------------------------------------------------------
Balance,
December 31, 1999 1,000 $ 1,000 $ 9,500 $ 515,951 $ 526,451
=================================================================
See accompanying notes to financial statements.
</TABLE>
<P>
MASS ENERGY, INC.
<P>
NOTES TO FINANCIAL STATEMENTS
<P>
(1) Organization and Significant Accounting Policies
<P>
Organization
<P>
Mass Energy, Inc. (the "Company" or "MEI") was incorporated
in Texas on November 24, 1997. The Company is engaged in
oil and gas exploration and development in Texas and
Louisiana.
<P>
M & R Exploration Company and Mass Energy, Inc., both Texas
business corporations, merged effective November 1, 1997 as
approved by the state of Texas. The plan of merger was
adopted in accordance with the Texas Business Corporations
Act. Under the terms of the merger, M & R Exploration
Company was the surviving corporation, as Mass Energy had no
assets or liabilities at the date of the merger. The plan
of merger further provided for the change of the corporate
name to Mass Energy, Inc.
<P>
Oil and Gas Producing Activities
<P>
The Company follows the "successful efforts" method of
accounting for its oil and gas properties. Under this
method of accounting, all property acquisition costs (cost
to acquire mineral interests in oil and gas properties) and
costs (to drill and equip) of exploratory and development
wells are capitalized when incurred, pending determination
of whether the well has found proved reserves. If an
exploratory well has not found proved reserves in commercial
quantities, the costs associated with the well are charged
to expense. The costs of development wells are capitalized
whether productive or nonproductive. Geological and
geophysical costs and the costs of carrying and retaining
undeveloped properties are expensed as incurred. Management
estimates that the salvage value of lease and well equipment
will approximately offset the future liability for plugging
and abandonment of the related wells. Accordingly, no
accrual for such costs has been recorded.
<P>
Unproved oil and gas properties that are individually
significant are periodically assessed for impairment of
value, and a loss is recognized at the time of impairment by
providing an impairment allowance. Other unproved
properties are amortized based on the Company's experience
of successful drilling and average holding period.
Capitalized costs of producing oil and gas properties, after
considering estimated dismantlement and abandonment costs
and estimated salvage values, are depreciated and depleted
by the unit-of-production method.
<P>
On the sale or retirement of a complete unit of a proved
property, the cost and related accumulated depreciation,
depletion, and amortization are eliminated from the property
accounts, and the resultant gain or loss is recognized. On
the retirement or sale of a partial unit of proved property,
the cost is charged to accumulated depreciation, depletion,
and amortization with a resulting gain or loss recognized in
income.
<P>
On the sale of an entire interest in an unproved property
for cash or cash equivalent, gain or loss on the sale is
recognized, taking into consideration the amount of any
recorded impairment if the property had been assessed
individually. If a partial interest in an unproved property
is sold, the amount received is treated as a reduction of
the cost of the interest retained.
<P>
Depletion and depreciation of capitalized costs for
producing oil and gas properties is provided using the
units-of-production method based upon proved reserves.
Accumulated depletion and depreciation expenses for the
Company's oil and gas properties amounted to $0 and $588,877
as of December 31, 1999 and 1998, respectively.
<P>
Impairment of Long-Lived Assets
<P>
The Company applies the provisions of the Statement of
Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of. Consequently, the Company assesses
impairment whenever events or changes in circumstances
indicate that the carrying amount of long-lived assets may
not be recoverable. When required, impairment losses on
assets to be held and used are recognized based on the fair
value of the asset and long-lived assets to be disposed of
are reported at the lower of carrying amount or fair value
less cost to sell.
<P>
When an assessment for impairment of oil and gas properties
is performed, the Company is required to compare the net
carrying value of proved oil and gas properties on a field-
by-field basis (the lowest level at which cash flows can be
determined on a consistent basis) to the related estimates
of undiscounted future net cash flows for such properties.
If the net carrying value exceeds the estimated undiscounted
net cash flows, then an impairment is recognized to reduce
the carrying value to the estimated fair value. At December
31, 1999 and 1998, respectively, the Company recorded no
impairment based on the excess carrying value of the
Company's oil and gas properties over the estimated future
discounted cash flows from such properties.
<P>
Accounting Estimates
<P>
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts
reported in the financial statements and the accompanying
notes. The actual results could differ from those
estimates.
<P>
The Company's financial statements are based on a number of
significant estimates including the allowance for doubtful
accounts, accrued production taxes, realizability of
intangible assets, selection of the useful lives for
property, plant and equipment, and oil and gas reserve
quantities. Oil and gas reserves quantities are the basis
for the calculation of depreciation, depletion, and
impairment of oil and gas properties. An independent
petroleum-engineering firm determines the Company's reserve
estimates. The 1998 reserve report was prepared in
September with an estimate of the proved reserves and future
revenue as of December 31, 1998. The reserve report was
prepared in September rather than December in accordance
with debt covenants associated with the Company's financing
arrangement with its financing institution in 1998. However
management emphasizes that reserve estimates are inherently
imprecise and that estimates of most recent discoveries and
nonproducing reserves are more imprecise than those for
properties with long production histories. At December 31,
1999 and 1998, approximately 90% and 6%, respectively, of
the Company's oil and gas reserves were attributable to
nonproducing reserves. Accordingly, the Company's estimates
are expected to change as future information becomes
available
<P>
As mandated under SFAS No. 121, the company is required
under certain circumstances to evaluate the possible
impairment of the carrying value of its long-lived assets.
For proved oil and gas properties, this involves an initial
comparison to the estimated future undiscounted cash flows.
In addition to the uncertainties inherent in the reserve
estimation process, these amounts are affected by historical
and projected prices for oil and natural gas, which have
typically been volatile. It is reasonably possible that the
Company's oil and gas reserves estimates will materially
change in the forthcoming year.
<P>
Other Property and Equipment
<P>
Property and equipment are recorded at cost less accumulated
depreciation. Upon retirement or sale, the cost of the
assets disposed of and the related accumulated depreciation
are removed from the accounts, with any resultant gain or
loss being recognized as a component of other income or
expense. Depreciation is computed over the estimated useful
lives of the assets (2-5 years) using the straight-line
method for financial reporting purposes and accelerated
methods for income tax purposes
<P>
Depreciation of property and equipment, other than oil and
gas properties, is provided generally on the straight-line
basis over the estimated useful lives of the assets as
follows:
<P>
Computers 2-5 years
Office Equipment 4 years
Furniture and Fixtures 4-5 years
Vehicles 3-5 years
<P>
Ordinary maintenance and repairs are charged to expense and
expenditures, which extend the physical or economic life of
the assets, are capitalized. Gains or losses on disposition
of assets are recognized in income, and the related assets
and accumulated depreciation accounts are adjusted
accordingly.
<P>
Cash and Cash Equivalents
<P>
For purposes of the statement of cash flows, the Company
considers cash equivalents to include all cash items, such
as time deposits and short-term investments with original
maturities of three months or less.
<P>
Oil and Gas Revenues
<P>
Oil and gas revenues are recorded under the sales method.
The Company recognizes oil and gas revenues as production
occurs. As a result, the Company accrues revenue relating
to production for which the Company has not received
payment.
<P>
Fair Value of Financial Instruments
<P>
Fair value estimates of the Company's financial instruments
are made at discrete points in time based on relevant market
information. These estimates may be subjective in nature
and involve uncertainties and matters of significant
judgment and, therefore, cannot be determined with
precision. The Company believes that the carrying amounts
of its current assets and current liabilities approximate
the fair value of such items. The carrying amount of cash
and cash equivalents approximates its fair value because of
the short maturity of these instruments.
<P>
The Company estimates the fair value of its financial
instruments using available market information and
appropriate valuation methodologies. However, considerable
judgment is required in interpreting market data to develop
the estimates of fair value. Accordingly, the Company
estimates of fair value are not necessarily indicative of
the amounts that the Company could realize in a current
market exchange. The use of different market assumption
and/or estimation methodologies may have a material effect
on the estimated fair value amounts. The Company believes
that the fair value of its financial instruments comprising
accounts receivable, notes receivable, accounts payable, and
notes payable approximate their carrying amounts.
<P>
(2) Federal Income Tax:
<P>
The currently payable (refundable) provision (credit) for
Federal income tax consists of the following:
<TABLE>
<S> <C> <C>
December 31,
1999 1998
-----------------------
Currently payable (refundable) provision (credit),
attributable to:
Current operations $ (36,000) $ (105,000)
Less:
Change in deferred tax asset valuation
Allowance 36,000 105,000
-----------------------------------
Net amount payable (refundable) $ - $ -
===================================
</TABLE>
<P>
The Company follows Statement of Financial Accounting
Standards No. 109 (SFAS 109), Accounting for Income Taxes.
Deferred income taxes reflect the net effect of (a)
temporary difference between carrying amounts of assets and
liabilities for financial purposes and the amounts used for
income tax reporting purposes, and (b) net operating loss
carryforwards. The cumulative tax effect at the expected
rate of 35% of significant items comprising the Company's
net deferred tax amounts as of December 31, 1999 and 1998
are as follows:
<TABLE>
<S> <C> <C>
December 31,
1999 1998
------------------------------
Deferred tax liabilities attributable to:
Net operating loss carryforwards $ 854,000 $ 1,486,000
Depreciation - (45,000)
Difference between book and tax basis - (669,000)
Alternate minimum tax 52,000 52,000
Less valuation allowance (906,000) (824,000)
-------------------------------
Deferred tax liabilities $ - $ -
===============================
</TABLE>
<P>
At December 31, 1999, the Company had net operating loss
carryovers of approximately $2,100,000. Such carryovers
expire at December 31, 2018.
<P>
(3) Concentration of Credit Risk
<P>
Financial instruments which potentially expose the Company
to concentrations of credit risk consist primarily of trade
accounts receivable. Substantially all of the Company's
accounts receivable at December 31, 1999 and 1998 result
from crude oil and natural gas and joint interest billings
to companies in the oil and gas industry. The Company's
customer base includes several of the major United States
oil and gas operating and production companies. This
concentration of customers and joint interest owners may
impact the Company's overall credit risk, either positively
or negatively, since these entities may be similarly
affected by changes in economic or other conditions. In
determining whether to require collateral from a customer or
joint interest owner, the Company analyzes the entity's net
worth, cash flows, earnings, and credit ratings.
Receivables are generally not collateralized; however,
receivables from joint interest parties are subject to
collection under operating agreements, which generally
provide lien rights. Historical credit losses incurred on
trade receivables by the Company have been insignificant.
Although the Company is directly affected by the well being
of the oil and gas industry, management does not believe a
significant credit risk exists at December 31, 1999 and
1998.
<P>
The Company's oil and gas properties are predominately
located in a single basin in which the gas marketing
arrangements are influenced by local supply and demand.
Accordingly, in comparison to the net price received by gas
producers in many other areas of the United States, the
Company often realizes a varying net sales price.
<P>
At December 31,1998, the company had a receivable from a
major oil company totaling approximately $350,000. This
balance was fully collected in 1999. At December 31, 1999,
there were no significant accounts receivable balances due
from any customers.
<P>
A substantial portion of the Company's 1998 debt financing
was obtained from a single lender. The Company maintains
deposits in banks, which may exceed the amount of federal
deposit insurance available. Management periodically
assesses the financial condition of the institutions and
believes that any possible deposit loss is minimal.
<P>
(4) Property and Equipment
<P>
A summary of property and equipment is as follows:
<TABLE>
<S> <C> <C>
December 31,
1999 1998
Unproved properties $ 143,024 $ 286,203
Oil and gas properties 40,283 8,074,328
Vehicles 29,637 60,195
Office equipment 108,144 99,858
----------------------------
321,088 8,520,584
Less accumulated depletion,
depreciation, and
amortization (108,167) (691,761)
----------------------------
$ 212,921 $7,828,823
============================
</TABLE>
<TABLE>
<S> <C> <C> <C>
Unproved Proved Total Capitalized Costs
Balance-
December 31, 1997 $ 246,895 34,767 281,662
Acquisition costs 39,308 8,273,752 8,313,060
Sale of oil and
gas properties - (234,191) (234,191)
---------------------------------------------------------------
Balance-
December 31, 1998 286,203 8,074,328 8,360,531
Acquisition costs - - -
Sale of oil and
gas properties (143,179) (8,034,045) (8,177,224)
----------------------------------------------------------------
Balance-
December 31, 1999 $ 143,024 40,283 183,307
=================================================================
<P>
</TABLE>
<P>
(5) Note Payable
<P>
On January 27, 1998, the Company obtained a promissory note
of approximately $9 million with a financing institution.
Under the terms of the note, the Company was able to use the
capital borrowed for the acquisition of oil and gas
properties with any remaining capital under the note to be
used as needed by the Company for operating purposes. Using
the capital obtained, the Company acquired approximately $8
million of oil and gas properties. The note was secured by
these oil and gas properties.
<P>
Interest is accrued on the unpaid balance of the note at an
annual rate of 14.5% and compounded monthly from the date
the funds are advanced. Monthly installments of principal
and interest began on February 25, 1998. These monthly
installments were to continue regularly until November 30,
2001, on which such date the unpaid principal balance of the
Note was to be due and payable in full.
<P>
Under the terms of the note with the financing institution,
the Company must meet certain covenant requirements. All
debt covenants relating to the Note are reporting
requirements (i.e. there are no financial covenants). At
December 31, 1998, the Company was in violation of two
reporting covenants. These covenant violations were
subsequently waived by the lender in connection with the
extinguishments of the note in 1999, as discussed in the
following paragraph.
<P>
On April 1, 1999, the Company and the financing institution
entered into a Settlement Agreement. Per the Agreement, the
Company was in default under some of the loan transactions
and did not have sufficient funds available to pay its
obligations to third party vendors who performed work on the
secured oil and gas properties. Under the terms of the
agreement, the Company requested 90 days (Sales Period) from
March 1, 1999, in which to secure a commitment for the
purchase and sale or refinancing of the Properties secured
by the Note based on terms agreeable to the financial
institution. In addition, the Agreement provided additional
financing to pay third party vendors and operating expenses
of the Company during the Sales Period. The Agreement
settled all claims and disputes associated with the Note
with no further litigation, negotiation, or settlement by
either the Company or the financing institution effective
May 31, 1999.
<P>
(6) Oil and Gas Properties
<P>
In 1998, the Company acquired approximately $8 million in
oil and gas properties. The properties were located in
Texas and Louisiana. The Company's acquisition of the oil
and gas properties was financed through a $9 million
promissory note (see Note 5). The note was secured by the
oil and gas properties acquired.
<P>
In 1999, the Company sold the oil and gas properties secured
by the promissory note that were acquired in the prior year.
The sale resulted in a gain of approximately $500,000. The
sale of these properties was pursuant to the terms of a
Settlement Agreement between the Company and the financial
institution. The Settlement Agreement was executed on April
1, 1999.
<P>
(7) Drilling Advances
<P>
During 1999, the Company received drilling advances from
joint interest partners of approximately $390,000. These
advances will be applied toward the payment of drilling
costs to be incurred in 2000.
<P>
(8) Environmental
<P>
The Company is subject to extensive Federal, state, and
locals environmental laws and regulations. These laws,
which are constantly changing, regulate the discharge of
materials into the environment and may require the Company
to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at
various sites. Liabilities for expenditures of noncapital
nature are recorded when environmental assessment and/or
remediation is probable, and the costs can be reasonably
estimated. No significant amounts for environmental
liabilities are recorded at December 31, 1999 or 1998.
<P>
(9) Commitments and Contingencies
<P>
Commitments: The Company leases corporate office facilities.
The Company previously leased these corporate facilities
under a two-year lease agreement that ended October 31,
1999. Under this agreement, the monthly lease payment was
approximately $3,000. The Company is currently under a
month-to-month lease agreement in which the monthly lease
amount is approximately $3,700. Total rent expense was
$37,483 and $31,200 in 1999 and 1998, respectively.
<P>
Contingencies: The Company is involved in various legal
proceedings arising in the normal course of business. In
the opinion of management, the Company's ultimate liability,
if any, in these pending actions would not have a material
adverse effect on the financial position, operating results
or cash flow of the Company.
<P>
(10) Related Party Transactions
<P>
At December 31, 1999, the Company had notes receivable due
from the Company's President of $159,000. The Company
recognized approximately $6,200 in interest income during
the year in association with the note receivable.
Approximately $150,000 of the balance is evidenced by a
promissory note. Under the note, interest accrues on the
unpaid principal at 6.25% per annum. In addition, the
Company's President is required to maintain term life
insurance payable to the company in an amount sufficient to
pay the principal and accrued interest in full in the event
of the President's death.
<P>
Also at December 31, 1999 and 1998, respectively, the
Company had non-interest bearing notes receivable due from a
related entity of $40,000 and $90,000. The related entity
is a company owned by the Company's current president and a
related party.
<P>
At December 31, 1999 the Company had notes payable due to
the Company's President and a related party of $25,000. The
note was subsequently paid.
<P>
At December 31, 1998, the Company had a note receivable due
from a related entity of $197,500. The related entity is a
company owned by the Company's President. Note receivable
was substantially collected in 1999.
<P>
(11) Supplemental Oil and Gas Information (Unaudited)
<P>
The following supplemental information regarding oil and gas
activities of the Company is presented pursuant to the
disclosure requirements promulgated by the Securities and
Exchange Commission and SFAS No. 69, Disclosures About Oil
and Gas Producing Activities. Capitalized costs relating to
oil and gas activities and costs incurred in oil and gas
property acquisition, exploration and development activities
for each year are shown below.
<P>
Capitalized Cost of Oil and Gas Producing Activities
<TABLE>
<S> <C> <C> <C>
1999 1998
Unproved properties not being amortized $ 143,024 $ 286,203
Proved property being amortized 40,283 8,074,328
Accumulated depreciation, depletion,
and amortization - (522,030)
Net capitalized costs $ 183,307 $7,838,501
<P>
Costs incurred in oil and gas property,
acquisition, exploration, and development activities
</TABLE>
<TABLE>
<S> <C> <C>
1999 1998
Property acquisition costs--proved and
unproved properties $ - $8,313,060
Exploration costs 59,713 -
Development costs - -
Results of operations for oil and gas
producing activities $ 59,713 $8,313,060
<P>
1999 1998
Oil and gas sales $ 835,201 $ 2,335,778
Lease operating expense and severance taxes 286,793 593,569
Depreciation, depletion, and amortization 294,549 588,877
Exploration costs 59,713 128,600
<P>
Income (Loss) before tax provision 194,146 1,024,732
Provision for income taxes - -
Result of operations $ 194,146 $ 1,024,732
</TABLE>
<P>
Oil and Gas Reserves
<P>
Oil and gas proved reserves could not be measured exactly.
The engineers interpreting the available data, as well as
price and other economic factors base reserve estimates on
many factors related to reservoir performance, which require
evaluation. The reliability of these estimates at any point
in time depends on both the quality and quantity of the
technical and economic data, the production performance of
the reservoirs as well as extensive engineering judgment.
Consequently, reserve estimates are subject to revision, as
additional data becomes available during the producing life
of a reservoir. When a commercial reservoir is discovered,
proven reserves are initially determined based on limited
data from the first well or wells. Subsequent data may
better define the extent of the reservoir and additional
production performance, well tests and engineering studies
will likely improve the reliability of the reserve estimate.
The evolution of technology may also result in the
application of improved recovery techniques such as
supplemental or enhanced recovery projects, or both, which
have the potential to increase reserves beyond those
envisioned during the early years of a reservoir's producing
life.
<P>
The following table represents the Company's net interest in
estimated quantities of proved developed and undeveloped
reserves of crude oil, condensate, natural gas liquids and
natural gas and changes in such quantities at December 31,
1999 and 1998, and for the years then ended. Net proved
reserves are the estimated quantities of crude oil and
natural gas which geological and engineering data
demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing equipment
and operating methods. Proved developed reserves are proved
reserve volumes that can be expected to be recovered through
existing wells with existing equipment and operating
methods. Proved undeveloped reserves are proved reserves
volumes that are expected to be recovered from new wells on
undrilled acreage or from existing wells where a significant
expenditure is required for recompletion. All of the
Company's proved reserves are in the United States. The
Company's oil and gas reserves are priced at $14.90 per
barrel and $2.09 per Mcf, respectively, at December 31,
1998. Due to the sale of certain properties as discussed in
Note 6, the Company had no proved oil and gas reserves at
December 31, 1999.
<TABLE>
<S> <C> <C>
Oil (Bbls) Gas (Mcf)
------------------------------------
January 1, 1998 16,670 10,814,627
Acquisitions of minerals in place 219,680 8,928,550
Revisions of previous estimates (3,295) (10,186,915)
Production (13,375) (634,380)
<P>
December 31, 1998 219,680 8,921,882
Sale of minerals in place (212,742) (8,568,625)
Production (6,938) (353,257)
<P>
December 31, 1999 - -(A)
<P>
</TABLE>
<P>
(A) As noted previously, the Company had no proved
reserves at December 31, 1999.
<P>
The Company's proved developed reserves are as follows:
<TABLE>
<C> <C>
Oil (Bbls) Gas (Mcf)
December 31, 1999 - -
December 31, 1998 150,871 5,275,579
</TABLE>
<P>
Standardized Measure of Discounted Future Net Cash Flow
<P>
The standardized measure of discounted future net cash flows
relating to the Company's proved oil and gas reserves is
calculated and presented in accordance with Statement of
Financial Accounting Standards No. 69. Accordingly, future
cash inflows were determined by applying year-end oil and
gas prices to the Company's estimated share of the future
production from proved oil and gas reserves. Future
production and development costs were computed by applying
year-end costs to future years. Applying year-end statutory
tax rates to the estimated net future cash flows derived
future income taxes. A prescribed 10% discount factor was
applied to the future net cash flows.
<P>
The standard measure is intended only to assist financial
statement users in making comparisons among companies
<TABLE>
<S> <C> <C>
(A)
1999 1998
<P>
Future Cash Inflows - 24,340,800
Future Production Costs - (9,860,500)
Future Development Costs - (300,900)
Future Income Tax Expense - (1,420,000)
Future Net Cash Inflows - 12,759,400
Annual 10% Discount Rate - (3,895,400)
--------------
Standardized measure discounted future
Net cash flows 8,864,000
-------------- ----------------
</TABLE>
<P>
(A) As noted previously, the Company had no proved
reserves at December 31, 1999.
<P>
Changes in Standardized Measure of Discounted Future Net
Cash Flows
<P>
The principal sources of change in the standardized measure
of discounted future net cash flows for the years ended
December 31, 1999 and 1998 were as follows:
<TABLE>
<S> <C> <C>
(A)
1999 1998
<P>
Beginning of the year $ 8,864,000 $ -
Sales and transfers of oil and gas produced,
net of production costs (548,408) (1,613,609)
Accretion 1,417,940 -
Purchase of reserves in price - 1,609,800
Sales of reserves in place (10,720,006) -
Net changes in prices and production costs - 209,000
Revisions of previous estimates - 7,473,281
Changes in taxes 980,474 -
Changes in timing of production - 1,185,528
End of year $ - $ 8,864,000
</TABLE>
<P>
(A) As noted previously, the Company had no proved
reserves at December 31, 1999.
<P>
Index to Exhibits
<P>
2.1 Stock Purchase Agreement and Share Exchange and
Exhibits *
<P>
2.2 Employment Agreement of Randall W. Massey *
<P
27 Financial Data Schedule
<P>
* Filed with the original 8-K filed on October 20, 2000
(Sec File No. 000-30503).
<P>
SIGNATURES
<P>
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly
authorized.
<P>
Pangea Petroleum Corp.,
a Colorado Corporation
<P>
By:/s/ Karen L. Cloud
--------------------------
Karen L. Cloud
Secretary
<P>
DATED: October 23, 2000
<P>
