U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-9800
LYRIC ENERGY, INC.
(Exact name of small business issuer as specified in its Charter)
Colorado 75-1711324
(State of Incorporation) (I.R.S. Employer Identification Number)
1013 West 8th Ave., Amarillo, Texas 79101
(Address of principal executive offices)
(806) 376-5088
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Sections 13 or 15(d) of the Securities 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.......
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date: 250,000,000 shares of common
stock as of August 31, 1997.
Transitional Small Business Disclosure Format (check one);
Yes....... No...X....
Index to Quarterly Report on Form 10Q-SB
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
(a) Financial Statements of Lyric Energy, Inc.
Report on Review by Independent Certified
Public Accountants
Balance Sheets as of October 31, 1997 and April
30, 1997
Statements of Operations for the Three-Month
Periods ended October 31, 1997 and 1996 and
Cumulative Period During the Development Stage
Statements of Cash Flows for the Six-Month
Periods ended October 31, 1997 and 1996 and
Cumulative Period During the Development Stage
Selected Information for Financial Statements,
including Pro Forma Combined Financial
Information
(b) Consolidated Financial Statements of Natural
Gas Technologies, Inc.
Report on Review by Independent Certified
Public Accountants
Balance Sheets as of October 31, 1997 and April
30, 1997
Statements of Operations for the Three and Six-
Month Periods ended October 31, 1997 and 1996
Statements of Cash Flows for the Six-Month
Periods ended October 31, 1997 and 1996
Selected Information for Consolidated Financial
Statements
Item 2. Management's Discussion and Analysis of Plan of Operation.
Plan of Operation of Lyric Energy, Inc
Management's Discussion and Analysis of Financial Condition
and Results of Operations of Natural Gas Technologies, Inc.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Item 2. Changes in Securities.
Item 3. Defaults Upon Senior Securities.
Item 4. Submission Of Matters To A Vote Of Security Holders.
Item 5. Other Information.
Item 6. Exhibits And Reports on Form 8-K.
SIGNATURES
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
(a) Financial Statements of Lyric Energy, Inc.
REPORT ON REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Lyric Energy, Inc.
Dallas, Texas
We have reviewed the accompanying balance sheet of Lyric Energy, Inc. as of
October 31, 1997, and the related statements of operations for three and six
months and cash flows for six months ended October 31, 1997 and 1996. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical review
procedures to financial data and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet as of April 30, 1997, and the related statements
of operations, retained earnings and cash flows for the year then ended (not
presented herein); and in our report dated July 18, 1997, we expressed an
unqualified opinion on those financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of April 30, 1997 is fairly stated in all material respects in relation to
the consolidated balance sheet from which it has been derived.
Robert Early & Company, P.C.
Abilene, Texas
December 12, 1997
LYRIC ENERGY, INC.
(A Development Stage Enterprise)
Balance Sheets
<TABLE>
<CAPTION>
October 31, April 30,
1997 1997
____________ __________
(Unaudited)
<S> <C> <C>
Assets
None None
Liabilities and Stockholders' Equity/(Deficiency)
Liabilities
Payable to Natural Gas
Technologies, Inc. $ 12,089 None
Stockholders' Equity/(Deficiency)
Common stock, $.01 stated
value (250,000,000 shares
authorized, 250,000,000
outstanding) 2,500,000 2,500,000
Additional paid-in
capital 224,222 224,222
Retained (deficit) (2,736,311) (2,724,222)
____________ ____________
Total Stockholders'
Equity/(Deficiency) (12,089) -
____________ ____________
TOTAL LIABILITIES
AND STOCKHOLDERS'
EQUITY $ - $ -
============ =============
</TABLE>
LYRIC ENERGY, INC.
(A Development Stage Enterprise)
Statements of Operations
For Three Months Ended October 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
During the
Development
Stage 1997 1996
____________ _________ _______
<S> <C> <C> <C>
General and
administrative expenses $ (47,625) $ (12,089) $ (593)
Interest expense to
related parties (1,482) - (2,223)
NET (LOSS) $ (49,107) $ (12,089) $(2,816)
============ =========== =========
Net loss per
weighted average share $ (0.00) $ (0.00) $ (0.00)
============ =========== =========
Weighted average
shares outstanding 160,439,221 250,000,000 46,958,483
============ =========== =========
</TABLE>
LYRIC ENERGY, INC.
(A Development Stage Enterprise)
Statements of Cash Flows
For Six Months Ended October 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
During the
Development
Stage 1997 1996
____________ _____ ______
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ (49,107) $ (12,089) $ (2,816)
Adjustments to reconcile net
income/(loss) to
net cash provided by operations:
Increase/(decrease) in:
Accounts payable (52,398) 12,089 (837)
Accrued expenses 1,482 - 2,223
__________ __________ ____________
NET CASH (USED) BY
OPERATING ACTIVITIES (100,023) - (1,430)
__________ __________ ____________
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable 100,000 - -
__________ __________ ____________
Increase/(decrease) in
cash for period (23) - (1,430)
Cash, Beginning of period 23 - 1,453
__________ __________ ____________
Cash, End of period $ - $ - $ 23
========== ========== ============
Supplemental Disclosures:
Cash payments for:
Interest $ - $ - $ -
Income taxes - - -
Cancellation of related
party and other
indebtedness $ 458,166 $ - $ -
Stock issued for
conversion of note
payable $ 100,000 $ - $ -
</TABLE>
LYRIC ENERGY, INC.
(A Development Stage Enterprise)
SELECTED INFORMATION FOR FINANCIAL STATEMENTS
October 31, 1997
(Unaudited)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions of Regulation S-B. They do not include
all information and footnotes required by generally accepted accounting
principles for complete financial statements. However, except as disclosed
herein, there has been no material change in the information included in the
Company's Annual Report on Form 10-KSB for the year ended April 30, 1997. In
the opinion of Management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
The report of Robert Early & Company, P.C. commenting on their review
accompanies the condensed financial statements included in Item 1 of Part 1.
Operating results for the six month period ended October 31, 1997, are not
necessarily indicative of the results that may be expected for the
year ending April 30, 1998.
Development Stage Enterprise -- The Company returned to the development stage
in November 1996 with the transfer of its final operating responsibility to
others and thereby reducing its activities to the sole pursuit of identifying,
evaluating, structuring, and completing a merger with or acquisition of a
privately owned entity.
Going Concern Issues The Company has been relatively inactive during the
past three years due to a shortage of operating assets and working capital. The
Company has no assets (or credit) with which to initiate new business or to
acquire an existing business These factors raise substantial doubt about the
Company's ability to continue as a going concern. The Company reentered the
development stage in November 1996 when it transferred its last operations to
another operator and reinforced its search for a merger or acquisition target
in order to carry on the operations of the target Company. The Company signed
a Letter of Intent to merge with Natural Gas Technologies, Inc. (NGT) in
January 1997. In April 1997, NGT acquired an 81% ownership interest in the
Company in a first step toward a merger. The ability of the Company to
continue as a going concern is dependent on the completion of this
transaction. There are no adjustments of financial statement information
required should the Company be unable to continue as a going concern.
NOTE 2: MERGER AGREEMENT WITH NATURAL GAS TECHNOLOGIES, INC.
On January 2, 1997, the Company entered into a Letter of Intent (LOI), amended
subsequently via a supplemental letter dated March 17,1997, with Natural Gas
Technologies, Inc., a Texas corporation. In accordance with the LOI, NGT
loaned the Company $100,000 pursuant to a non-interest bearing, convertible
note dated February 4, 1997 (Note), and the loaned funds were placed in
escrow. The Note was converted on April 10, 1997 into 203,041,517 common
shares, which were all of the remaining authorized but unissued common shares
of the Company. Conversion occurred after the Company had filed all of the
required reports pursuant to the Securities Exchange Act of 1934, as amended,
and after the Company had obtained a waiver from a bank of the Company's
commitment in connection with a compromise and settlement agreement
related to a bank debt forgiveness in July 1991. This commitment was the
maintenance of the bank's ownership interest at a constant 8.9976% through
issuance of additional common stock as needed. Upon conversion, loaned funds
were released from escrow to the Company for use in satisfying all existing
debts and encumbrances and settling all claims against it.
The LOI further provides for a share exchange transaction whereby the
shareholders of NGT are to be issued additional shares in the Company such that
the mutual interests of the two companies shareholders as of April 1997 would be
approximately 5% retained by the shareholders of the Company and shareholders of
NGT would own the remaining 95% of the total issued and outstanding common
shares of the Company. NGT would become a wholly owned subsidiary of the
Company. This ratio of ownership between NGT shareholders and the previous
shareholders is for NGT shareholders and for transactions effective April 1,
1997 and prior. Subsequent transactions in NGT shares are not included in
this ratio and must be approved as to value by the Board of Directors of the
Company. The share exchange will occur after the Company holds
a shareholder meeting for the purpose of (1) approving a reverse split of the
Company's common stock which will result in additional common shares being
made available in order to issue shares in the shares exchange; (2) authorizing
10,000,000 shares of no par value preferred stock (Approximately 75,000 of
these will be designated for exchange with NGT preferred shareholders in the
share exchange and the remaining 9,925,000 will be reserved for future
issuance at the discretion of the Board of Directors.); and (3) approving
certain other amendments to the Company's Articles of Incorporation. The
Company has filed its information statement with the SEC and is awaiting
their acceptance of that document in order to hold its shareholder meeting.
NOTE 3: PRO FORMA COMBINED FINANCIAL INFORMATION
The following tables set forth the pro forma combined balance sheet at October
31, 1997 and results of combined operations of the Company and NGT as though the
entities had been combined for the year ended April 30, 1997 and the six
months ended October 31, 1997. These combined statements presume that the
Company will acquire 100% of the outstanding common and preferred shares of
NGT in exchange for the issuance of previously unissued shares. This
issuance, coupled with the conversion of the note as described above into
Company shares will cause NGT shareholders as of April 2, 1997 to own 95% of
the Company. NGT will dstribute the shares it received in the note
conversion to NGT stockholders as part of the share exchange. This
transaction qualifies as a purchase for accounting purposes. However, the
transaction also is considered to be a reverse merger whereby NGT will
be considered to be the acquirer for accounting purposes. As such, there are
no adjustments to the carrying value of NGT assets and liabilities to reflect
current fair values and the Company has no assets and liabilities that require
adjustment.
As mentioned above, a portion of the transaction agreement calls for the
Company to reverse split its outstanding shares after the note conversion by
a factor of one share for 240.597 shares. Table I presents summarized
balance sheets for the two entities at October 31, 1997.
Estimated adjustments to the balance sheet required as a direct result of the
acquisition plan and the transactions contemplated therein consist primarily
of the adjustments required due to the reverse stock split and the
issuance of new shares by the Company to the NGT shareholders. The balance
sheet eliminations consist of intercompany balances.
Tables II and III present pro forma results of operations for the combined
entities. Table II is for the year ended April 30, 1997 and Table III is for
the six months ended October 31, 1997. The adjustments in Table II consist
of the elimination of the non-recurring transactions of the Company during
the year. Adjustments required in Table III are described in the notes to the
pro forma financial statements.
Table I
Pro Forma Combined Balance Sheet
As of October 31, 1997
<TABLE>
<CAPTION>
Lyric NGT Adjustments Pro Forma
Combined
________ ______ ___________ ___________
<S> <C> <C> <C> <C>
Assets
Current assets $ - $377,527 $ - $377,527
Fixed assets (net
of depreciation and
depletion - 11,027,151 - 11,027,151
Other assets - 296,069 - 296,069
_________ __________ ________ _____________
Total Assets $ - $11,700,747 $ - $11,700,747
========= ========== ======== =============
Liabilities and Equity
Liabilities:
Current
liabilities $12,089 $2,012,856 $(12,089) $2,012,856
Notes payable - 3,089,099 - 3,089,099
Redeemable
Preferred A stock - 38,388 - 38,388
Minority interest
in subsidiary - 26,157 (26,157) -
Stockholders' equity:
Preferred B stock - 265,440 - 265,440
Common stock 2,500,000 4,085 (2,463,728) 40,357
Additional paid
in capital 224,222 8,458,788 (232,067) 8,450,943
Deferred services
and stock
receivable - (160,000) - (160,000)
Retained
(deficit) (2,736,311) (2,034,066) 2,734,041 (2,036,336)
___________ ____________ __________ ____________
Total
stockholders'
equity (12,089) 6,534,247 38,246 6,560,404
___________ ____________ __________ ____________
Total
Liabilities
and Stockholders'
Equity $ - $11,700,747 $ - $11,700,747
=========== ============ ========== ============
Table II
Pro Forma Combined Results of Operations
For the Year Ended April 30, 1997
Lyric NGT Adjustments Pro Forma
Combined
_______ _______ ____________ __________
Revenues $ - $100,992 $ - $100,992
________ ________ ____________ ___________
LOE and
production taxes - 103,646 - 103,646
Depreciation,
depletion and
amortization - 50,394 - 50,394
Management and
consulting costs 35,000 115,000 (70,000) 80,000
Legal and
professional - 44,816 - 44,816
Other expenses 593 43,688 (593) 43,688
________ ________ ________ ________
Total
operating
expenses 35,593 357,544 (70,593) 322,544
________ ________ _________ ________
(Loss from
Operations) (35,593) (256,552) 70,593
(221,552)
Interest income - 715 - 715
Interest expense (5,928) (49,786) 5,928
(49,786)
_________ _________ _________ _________
Net (Loss) $(41,521) $(305,623) $76,521
$(270,623)
========== =========== ========= ===========
Net (Loss)
per share $ (.07)
===========
Table III
Pro Forma Combined Results of Operations
For the Six Months Ended October 31, 1997
Lyric NGT Adjustments Pro Forma
Combined
______ _____ ____________ _________
Revenues $ - $172,255 $ - $172,255
_______ ________ ____________ __________
LOE and
production taxes - 271,041 - 271,041
Depreciation,
depletion and
amortization - 113,605 - 113,605
Management and
consulting costs - 75,000 - 75,000
Legal and professional 12,089 114,337 (12,089) 114,337
Personnel costs - 113,555 - 113,555
Extraordinary item - 386,000 (386,000) -
Other expenses - 51,689 - 51,689
_______ ________ _________ __________
Total
operating expenses 12,089 1,125,227 (398,089) 739,227
_______ _________ _________ __________
(Loss from
Operations) (12,089) (952,972) 398,089 (566,972)
Interest income - 5,556 - 5,556
Interest expense - (167,818) - (167,818)
Net (Loss) $ (12,089)$(1,115,234) $398,089 $729,234
========== =========== ======== ==========
Net (Loss) per share $ (0.14)
==========
</TABLE>
Notes to Pro Forma Financial Statements:
The adjustments to the pro forma balance sheet consist of eliminating an
intercompany payable of $12,089, eliminating the minority interest in Lyric
Energy included in NGT's consolidated statements, and giving effect to the
reverse split and exchange of newly issued shares for NGT shares outstanding.
Adjustments to the pro forma results of operations for the year ended April
30, 1997 consist of elimination of non recurring costs incurred by Lyric. The
elimation is doubled since these costs were also included in NGT's
consolidated statements.
Adjustments to the proforma results of operations for the six months ended
October 31, 1997 consist of the elimination of costs incurred by Lyric which are
duplicated in NGT's consolidated statement and the elimination of the non-
recurring loss from abandonment of the blending license.
(b) Financial Statements of Natural Gas Technologies, Inc.
REPORT ON REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Natural Gas Technologies, Inc.
Dallas, Texas
We have reviewed the accompanying consolidated balance sheet of Natural Gas
Technologies, Inc. and Subsidiaries as of October 31, 1997 and April 30, 1997,
and the related consolidated statements of operations for three and six
months and cash flows for six months ended October 31, 1997 and 1996. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical review
procedures to financial data and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
_____________________________
Robert Early & Company, P.C.
Abilene, Texas
December 10, 1997
NATURAL GAS TECHNOLOGIES, INC. & SUBSIDIARIES
Balance Sheets
<TABLE>
<CAPTION>
October 31, April 30,
1997 1997
____________ __________
(Unaudited) (Restated)
<S> <C> <C>
Assets
Current Assets:
Cash $ 340,283 $ 816,725
Accounts receivable 37,244 3,407
___________ __________
Total Current Assets 377,527 820,132
Fixed Assets:
Oil & gas properties (full
cost method, $637,496 has been
excluded from amortization as
an unproved cost) 11,221,546 8,682,579
Furniture & equipment
($40,000 not in service) 11,096 40,000
Accumulated depreciation
& depletion (205,491) (114,077)
__________ __________
Total fixed assets 11,027,151 8,408,502
__________ _________
Other Assets:
Patent & process license
(net of amortization of
$2,000 at 4/30/97) - 358,000
Investment in Kodiak
Corporation 190,000 -
Investment in Wagman
Petroleum, Inc. stock 14,464 14,464
Deposits 3,049 3,049
Goodwill (net of
amortization of
$16,667 & $1,667) 88,333 98,333
Organizational costs
(net of amortization
of $1,687 & $1,496) 223 414
_________ ________
Total Other Assets 296,069 474,260
_________ ________
TOTAL ASSETS $11,700,747 $9,702,894
============ ===========
Liabilities and Stockholders' Equity
Accounts payable
(primarily to
related party) $1,550,141 $291,031
Accrued interest 134,467 40,109
Advances and amounts
due officers 201,136 1,136
Note payable and
advance from
related party 123,767 79,067
Current portion of
notes payable 3,345 13,962
___________ _________
Total Current
Liabilities 2,012,856 425,305
Notes payable
(net of current
portion) 3,089,099 2,856,292
____________ ___________
TOTAL LIABILITIES 5,101,955 3,281,597
____________ ___________
Redeemable Preferred stock,
Series 1994-A $4.00 par
value (500,000 shares
authorized, 9,597
outstanding) 38,388 38,388
Minority interest in
consolidated subsidiary 26,157 28,427
Stockholders's Equity
Preferred stock,
Series 1994-B
$4.00 par value (500,000
shares authorized,
66,360 outstanding) 265,440 265,440
Common stock, $.001
par value (10,000,000
shares authorized,
4,085,247 and 4,014,390
outstanding) 4,085 4,014
Additional paid-in capital 8,458,788 7,322,860
Deferred services (160,000) (160,000)
Receivable for stock
issued to officers - (159,000)
Retained (deficit) (2,034,066) (918,832)
___________ __________
Total Stockholders'
Equity 6,534,247 6,354,482
___________ __________
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $11,700,747 $9,702,894
</TABLE>
NATURAL GAS TECHNOLOGIES, INC. & SUBSIDIARIES
Statements of Operations
For Three and Six Months Ended October 31, 1997 and 1996
<TABLE>
<CAPTION>
(Unaudited)
Three Months Six Months
1997 1996 1997 1996
_______ ______ _____ _______
<S> <C> <C> <C> <C>
Oil and gas revenues $105,794 $22,394 $172,052 $47,020
Other income - - 203 5
_______ _______ _______ _______
Total Revenues 105,794 22,394 172,255 47,025
_______ _______ _______ _______
Expenses:
Production taxes 4,230 1,128 6,886 2,402
Lease operating
expenses 144,301 16,409 264,155 36,104
Depreciation,
depletion and
amortization 67,021 10,701 113,605 21,884
Professional fees 67,985 - 114,337 -
Consulting fees 52,500 - 75,000 -
Personnel costs 63,948 - 113,555 -
Rent - 1,050 9,148 2,100
Business promotion - (443) 3,315 -
Director's fees - 8,333 - 20,833
Taxes - 1,788 1,898 1,788
Travel 11,328 50 18,556 600
Offering costs - - - 3,000
Other expenses 4,446 2,441 21,042 2,444
Loss on abandoned
blending license 386,000 - 386,000 -
Minority interest
in loss of
consolidated
subsidiary (2,270) - (2,270) -
________ ________ ____________ _______
Total Expenses 799,489 41,457 1,125,227 91,155
_______ ________ ____________ _______
(Loss) from Operations (693,695) (19,063) (952,972) (44,130)
Interest income 2,378 - 5,556 -
Interest expense (86,853) (784) (167,818) (1,917)
_________ ________ ____________ _______
NET (LOSS) (778,170) (19,847) (1,115,234) (46,047)
Less unpaid preferred
stock dividend
claims for the year (2,401) (2,401) (4,802) (4,802)
________ ________ __________ _______
Net (loss) attributable
to common shareholders $(780,571) $(22,248) $(1,120,036) $(50,849)
=========== ========== ============ =========
(Loss) per share data:
Primary $ (0.19) $ (0.01) $ (0.28) $ (0.02)
=========== ========== =========== =========
Primary, attributable
to common shares (0.19) (0.01) $ (0.28) $ (0.02)
=========== ========== =========== =========
Fully diluted $ (0.19) $ (0.01) $ (0.28) $ (0.02)
=========== ========== =========== =========
Fully diluted,
attributable to
common shareholders (0.19) (0.01) $ (0.28) $ (0.02)
=========== ========== =========== =========
</TABLE>
NATURAL GAS TECHNOLOGIES, INC. & SUBSIDIARIES
Statements of Cash Flows
For Six Months Ended October 31, 1997 and 1996
<TABLE>
<CAPTION>
(Unaudited)
1997 1996
________ ________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,115,234) $(46,047)
Adjustments to reconcile net
income/(loss) to
net cash provided by operations:
Depreciation, depletion and
amortization 146,302 21,884
Amortization of directors fees - 20,833
Amortization of deferred services 70,000 -
Loss on impairment of assets 386,000 -
(Increase)/decrease in:
Accounts receivable (33,837) (14,083)
Security deposit - -
Increase/(decrease) in:
Accounts payable 1,259,110 17,675
Accrued expenses 94,358 -
Minority interests (2,270) -
__________ _________
NET CASH PROVIDED BY
OPERATING ACTIVITIES 804,429 262
__________ _________
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for drilling costs
and oil & gas leases (1,648,967) (4,587)
Purchase of lease and
well equipment (11,096) -
Investment in joint venture (190,000) -
___________ _________
NET CASH (USED) BY
INVESTING ACTIVITIES (1,850,063) (4,587)
___________ _________
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock 385,000 -
Advances from related parties 244,700 12,026
Note payments (60,508) (7,838)
_____________ _________
NET CASH PROVIDED BY
FINANCING ACTIVITIES 569,192 4,188
_____________ _________
Increase/(decrease)
in cash for period (476,442) (137)
Cash, Beginning of period 816,725 506
_____________ _________
Cash, End of period $340,283 $369
=========== =========
Supplemental Disclosures:
Cash payments for:
Interest $40,874 $1,917
Income taxes - -
Stock issued for prepaid
professional services 70,000 -
Acquisition of oil and gas
assets for note payable 250,000 -
Acquisition of oil and gas
assets from related party for
note payable and options:
Note payable 200,000 -
Contributed capital 640,000 -
</TABLE>
NATURAL GAS TECHNOLOGIES, INC. & SUBSIDIARIES
SELECTED INFORMATION FOR CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
October 31, 1997
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with instructions of Regulation S-B. They do not include all
information and footnotes required by generally accepted accounting
principles for complete financial statements. However, except as disclosed
herein, there has been no material change in the information included in
Lyric Energy, Inc.'s Annual Report on Form 10-KSB for the year ended April 30
, 1997. In the opinion of Management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. The report of Robert Early & Company, P.C. commenting on their
review accompanies the condensed financial statements included in Item 1 of
Part 1. Operating results for the six month period ended October 31, 1997,
are not necessarily indicative of the results that may be expected for the
year ending April 30, 1998.
NOTE 2: RESTATED BALANCES AT APRIL 30, 1997
During the review process of the preliminary information statement for Lyric
Energy, Inc. by the Securities and Exchange Commission, it was pointed out
that the note payable to EXP, Inc for $3,000,000 should have been recorded at a
discount representing the fair value of the note at the time the Company
acquired Interior Energy, Inc. with the discount being amortized over the
term of the note. This correction has been noted and will be corrected in
revised audited financial statements to be filed with answers to the SEC's
comments regarding that filing. The fair value of the note was $2,850,154.
Through October 31, 1997, $38,835 of the discount has been amortized to
interest expense.
NOTE 3: ACQUISITION OF OIL AND GAS ASSETS
During the quarter ended July 31, 1997, the Company acquired four additional
interests and drilled on five properties. The Touchstone lease was acquired
for a note payable of $250,000 and $100,000 cash. This lease had two producing
wells. The Hutton lease was purchased for $33,900 cash and reworked,
including new equipment, for approximately $14,000. The Company's president
transferred his 50% interest in the Norton prospect in exchange for a note of
$200,000 and options to purchase 100,000 shares of common stock at $7 per
share over the next two years. The Company had purchased its original 50%
from a third party for stock valued at $840,000 in April 1997. The Company's
directors had approved its president's investment in this prospect in
December 1996 when the Company did not have any cash to invest. The Miller
Ranch lease cost $164,868 and calls for initial drilling within three years.
Other properties with significant activity included drilling five wells on
the Norton prospect and approximately $242,000 spent on the East Milham Sand
Unit as work continues toward revitalizing the production on that property.
In another venture, the Company paid $100,000 for an option to purchase of an
interest in a significant reworking project in Central West Texas. After
results from initial work had been evaluated, management determined that this
project was not economically feasible at the total cost of the interest. As
a result of this decision, the Company abandoned its investment. Also, the
Company spent $24,000 on a well that turned out to be a dry hole.
NOTE 4: NOTES PAYABLE
As mentioned above, the Company added two notes payable in its acquisitions of
assets during the first quarter. The first is a note to EXP, Inc. for
$250,000, bearing interest at 8%, due in December 1998. The second is a note
to Brent Wagman for $200,000, bearing interest at 5%, due in May 1999.
NOTE 5: INVESTMENT IN KODIAK CORPORATION
During August 1997, the Company loaned $160,000 to Kodiak Corporation for
planned drilling activities. Kodiak owned 60% of the working interest in
various leases that the Company believed to have significant drilling
potential. It also owned interests in nine wells that had produced
reasonable quantities of oil in the past. The loan was to be used to drill
on a prospect that Kodiak owned and was secured by a deed of trust covering
the title to the proposed drilling tract. As additional inducement for the
loan, the Company received the right to 40% of Kodiak's interest in future
drilling activities on the leases which had not been developed.
At the end of September 1997, Kodiak had not begun drilling and the Company
converted its loan to a 40% equity ownership interest in Kodiak. This
entity's activities are recorded on the Company's books using the equity
method since ownership is less than 50%. However, Kodiak did not record any
operating activities during October and had no effects on the Company's income
statement.
NOTE 6: DEFERRED SERVICES AND ABANDONMENT OF BLENDING LICENSE
During the quarter ended July 31, 1997, the Company issued 10,000 shares of
stock as an employment bonus to Terrance Huston. These shares were issued
pursuant to an employment contract with an eight month initial term. Mr.
Huston was expected to be significantly involved in initiating the gasoline
blending operation and was employed to work out the details of this operation
and to promote sales and interest among gasoline vendors. The value of these
shares, $70,000, was being amortized over the eight months of the contract.
During September 1997, it was determined that Mr. Huston's efforts to initiate
the business had failed. Mr. Huston controlled the entity which sold the
blending license and related assets to the Company. In light of these facts, the
Company has terminated its relationship with Mr. Huston. Due to the
indications that these assets have little, if any, future value to the
Company, the license, carried at $346,000, and the equipment, carried at
$40,000, have been written off pending indication of future value.
The Company has also expensed the remainder of Mr. Huston's deferred service
cost.
NOTE 7: RELATED PARTY TRANSACTIONS
The accounts payable balance has significantly increased during the six months
ended October 31, 1997. This is primarily due to drilling activities. The
total accounts payable includes $1,498,959 payable to Wagman Petroleum, Inc. for
drilling and lease operating expenses incurred since February 1997. At this
time, Wagman Petroleum, a related party due to common management, has
indicated that it is content to wait for the Company to be able repay these
costs.
The Company's president and Wagman Petroleum have advanced or loaned a total
of $244,700 to the Company during the six months. The Company's president has
also purchased 60,857 shares of common stock for $426,000.
Additionally, during the second quarter, Wagman Petroleum which shares an
office with the Company, agreed to increase its share of the office costs and
reimbursed the Company for one-half of the rent and telephone expenses. This
increase was made effective back to April when the two companies moved to
Dallas. The effect of the reimbursement during the second quarter is the
reporting of significantly lower costs for the current quarter in these
categories.
NOTE 8: PLANNED FUNDING AND GOING CONCERN
The Company's drilling activities and operating expenses exceed its revenues.
Without the related party cash flows indicated above, the Company cannot
continue its planned activities. As a result of this, the Company has made
plans to decrease its payables and increase its equity as described below.
The Company has acquired a public shell, Lyric Energy, Inc. and plans to
become a subsidiary of Lyric through a stock exchange. The combined entity
plans to have a public offering in order to raise funds for its planned
activities and to repay Wagman Petroleum for the work already done. Timing
for this offering is dependent on several factors including clearance of
filed documents by the Securities and Exchange Commission. There is no
assurance that this method of funding will be successful in raising the
capital necessary to repay past costs as well as to fund activities planned
for the future. Should the Company fail to raise the necessary
capital to fund its planned activities, cash flows are not expected to be
sufficient to fund them and portions of the assets would, in all likelihood,
not be realizable. No adjustments have been made to reflect this outcome, which
is not anticipated.
NOTE 9: SUBSEQUENT EVENTS
Subsequent to the end of the second quarter, the Company has entered into a
joint venture with Trans Energy, Inc. The terms of the joint venture call
for the creation of a limited liability company, owned in equal shares, which
will drill on an oil and gas prospect in the Powder River Basin in Wyoming
contributed by Trans Energy. The Company has agreed to contribute cash of
$700,000 for the drilling of two wells on this prospect. In addition, Trans
Energy has been given the right to require the Company to contribute one-half
of its Crockett County, Texas prospect to the LLC if matched by a $150,000
cash contribution by Trans Energy. The Company's management believes that
the Powder River Basin contains significant reserves based on review of
seismic studies and the relationship of the prospect to other producing wells
in the area.
In addition to the above, Kodiak has transferred the leases that the Company
had received rights to, along with certain other assets to a new entity. The
Company has contributed its ownership interest in Kodiak to this new entity in
exchange for 40% ownership of the entity. This entity plans to develop the
properties contributed.
Item 2. Plan of Operation of Lyric Energy, Inc.
Lyric Energy, Inc. ("Lyric") is a development stage company that is
currently focusing on a proposed transaction with Natural Gas Technologies, Inc.
("NGT"), a Texas corporation engaged in the exploration, development and
production of oil and gas properties, which proposed transaction is discussed
below under "Acquisition of Control and Share Exchange Transaction." In the
event that transaction is not completed, Lyric will focus on the
identification and evaluation of other prospective merger or acquisition
"target" entities including private companies, partnerships or sole
proprietorships.
Lyric has no capital with which to provide merger or acquisition
candidates with cash or other assets and in the absence of being able to
complete a merger or acquisition or borrow money from related parties or some
other source, it is unlikely that Lyric will be able to continue as a going
concern. However, management believes that Lyric offers potential merger or
acquisition candidates the opportunity to acquire a controlling ownership
interest in a public company at substantially less cost than is required to
conduct an initial public offering.
Acquisition of Control and Share Exchange Transaction
Lyric has entered into a letter of intent dated January 2, 1997 and
modified March 17, 1997 (the "Letter of Intent") with NGT for a share exchange
transaction ("Share Exchange"). The Letter of Intent became binding by the
March 17, 1997 amendment. The reason for the Share Exchange is to carry out
Lyric's Plan of Operation to acquire an operating company. Prior to entering
into the Letter of Intent, Lyric and NGT were unrelated and NGT held no
shares of Lyric.
Pursuant to the Letter of Intent, NGT loaned Lyric $100,000 pursuant to a
non-interest bearing Convertible Promissory Note (the "Note"). The Note had a
maturity date of December 31, 1997 and automatically converted into
203,041,517 shares of Lyric's Common Stock upon (i) Lyric coming into current
compliance with the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and (ii) Lyric obtaining a waiver from the Bank of certain
non-dilution rights in favor of the Bank. The Note converted by its terms on
April 10, 1997, which resulted in NGT obtaining a controlling interest in
Lyric. Previously, no single person or voting group controlled Lyric. G.E.
Stahl was the sole Director and approved the transaction in that capacity.
The source of the $100,000 was loans to NGT from Brent Wagman and Warren
Donohue, both officers and directors of NGT.
The Share Exchange will commence after the approval of the matters on the
agenda at a special meeting (the "Special Meeting") to be called for the
purpose of approving (i) a one share for 240.597 share (1 for 240.597)
reverse stock split of Lyric's Common Stock; (ii) an amendment to Lyric's
Articles of Incorporation to authorize 10,000,000 shares of no par value
preferred stock, 9,597 of which will be designed as Series 1994-A Preferred
Stock, 66,360 of which will be designated as Series 1994-B Preferred Stock
and the remainder to be reserved for future issuance in the discretion of the
Board of Directors; (iii) a change of the name of Lyric to Natural Gas
Technologies, Inc.; (iv) an amendment to Lyric's Articles of Incorporation to
eliminate the liability of Directors and Officers in certain circumstances;
(v) an amendment to Lyric's Articles of Incorporation to reduce the
voting requirement for certain fundamental corporate actions; and (vi) an
amendment to Lyric's Articles of Incorporation to reduce the quorum for
shareholders meetings to one third of all outstanding votes . Each of these
actions is being taken in connection with the Share Exchange. By virtue of
the shares acquired by NGT upon conversion of the Note, NGT holds sufficient
votes to assure shareholder approval of all of the matters on the agenda.
The Special Meeting will be called shortly after the Securities and Exchange
Commission approves the Information Statement to be sent to shareholders in
connection with the Special Meeting, which Information Statement has been
filed with the Commission.
The Share Exchange will take place in two stages. The first stage will
occur immediately after the Special Meeting and will consist of the exchange of
approximately 2,671,000 shares of the authorized but unissued post-reverse
split shares of Lyric's Common Stock for 3,366,757 shares of NGT common
stock, which constitutes approximately 82 percent of the equity interests in
NGT. The NGT shares to be exchanged in the first stage are held by certain
officers, directors, affiliates and sophisticated investors. Lyric will
control NGT upon completion of the first stage.
The second stage will occur upon the approval by NGT shareholders of the
exchange of the remaining NGT shares pursuant to an S-4 Registration Statement
and Proxy Statement which registers the exchange of all of the remaining equity
interests in NGT into shares of the authorized but unissued post-reverse split
Common Stock of Lyric and further provides for the distribution of the 843,908
post-reverse split shares of Common Stock issued to NGT upon conversion of the
Note to the shareholders of NGT immediately prior to the Share Exchange. It
is also contemplated that the shares issued in the first stage of the Share
Exchange will be registered for resale by such registration statement. NGT has
outstanding 9,597 shares of Series 1994-A Preferred Stock and 66,360 shares
of Series 1994-B Preferred Stock. These preferred shares are non-voting and
will be converted upon the second stage of the Share Exchange into the same
number of Series 1994-A and Series 1994-B preferred shares of Lyric.
These shares are to be authorized and designated at the Special Meeting. As
of the date hereof, the Series 1994-A shares of NGT have accrued an aggregate
of $10,653 in dividends and the Series 1994-B shares of NGT have accrued an
aggregate of $26,524 in dividends. These amounts will become accumulated but
unpaid dividends of the respective series of preferred stock of Lyric to be
issued in the exchange. Lyric intends to surrender the NGT preferred shares
it acquires in the Share Exchange. Upon completion of the Share Exchange,
the current shareholders of Lyric will hold approximately five
percent of the total outstanding shares of Lyric and the shareholders of NGT
will hold the remaining 95 percent, assuming conversion of the preferred
shares to be issued in the Share Exchange to common shares.
The material terms of the Note and the Share Exchange were negotiated and
agreed to by Lyric and NGT prior to NGT obtaining control of Lyric. The terms
were the result of arms' length negotiations between Lyric and NGT. In light
of the independence of the companies at the time of the negotiations and Lyric's
lack of assets and operations, the Board of Directors determined that an
independent valuation or fairness opinion would offer very little support to
the valuation of the transaction. Factors considered in determining the
amount of the Note and the percentage of shares held by either party
subsequent to all conversions were (i) funds necessary to pay off Lyric's
debts, (ii) expenses to bring Lyric's reports current, (iii) the amount of
debt to be forgiven, (iv) the market for Lyric's shares, (v) the inability of
NGT to utilize Lyric's loss carryforward, and (vi) the relative value of the
two businesses as determined by each company's Board of Directors.
The Share Exchange is expected to be accounted for as a purchase. The
Share Exchange is structured as a tax-free reorganization and should not have
any tax consequences for the shareholders of Lyric or NGT.
Under Colorado law, the Share Exchange may be effected by resolution of
the Board of Directors of Lyric. Approval of the shareholders of Lyric is not
required and Colorado law does not grant dissenter's rights to the
shareholders of Lyric.
The Share Exchange remains conditional upon the completion of final
documentation therefor, but management currently expects that the Share
Exchange will be completed.
Liquidity and Capital Resources
On October 31, 1997, Lyric had no assets. Should the Share Exchange not
be completed and in the absence of being able to borrow money from related
parties or some other source, it is unlikely that Lyric will be able to
continue as a going concern.
Management's Discussion and Analysis of Financial Condition and Results of
Operations of NGT
Overview
The following discussion should be read in conjunction with the
disclosures concerning NGT contained in the Form 10-KSB for Lyric for the
year ended April 30, 1997.
NGT uses the full cost method of accounting for its oil and gas producing
activities and, accordingly, capitalized all costs incurred in the
acquisition, exploration and development of proved oil and gas properties,
including the costs of abandoned properties, dry holes, geophysical costs and
annual lease rentals. In general, sales or other dispositions of oil and gas
properties are accounted for as adjustments to capitalized costs, with no
gain or loss recorded.
NGT entered into a letter of intent dated January 2, 1997, as modified on
March 17, 1997, whereby NGT obtained on April 10, 1997 a controlling interest
in Lyric, and pursuant to which Lyric will acquire NGT in a share exchange
transaction whereby the shareholders of NGT will upon completion of the
transaction hold approximately 95 percent of the total outstanding shares of
Lyric. See "Acquisition of Control and Share Exchange Transaction" discussed
in the Plan of Operation of Lyric above.
Results of Operations
The following tables set forth for the periods indicated the percentage of
total revenues represented by certain line items included in NGT's Statements of
Operations.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended October
October 31 31
__________________ _________________________
1997 1996 1997 1996
_________________________________________________
<S> <C> <C> <C> <C>
Total revenues 100% 100% 100% 100%
Total expenses 756 185 653 194
(Loss) from operations (656) (85) (553) (94)
Net interest income
(expense) (80) (4) (94) (4)
Net (loss) (736) (89) (647) (98)
</TABLE>
Oil and gas revenues. Oil and gas revenues increased by $125,000, or 266
percent, to $172,052 for the six months ended October 31, 1997 compared with
$47,020 for the 1996 period. Oil and gas revenues were $105,794 for the three
months ended October 31, 1997, which represents an increase of $83,400, or 372
percent, compared to $22,394 for the 1996 period. These increases were
primarily attributable to new production from acquisitions and successful
reworks of older wells, partially offset by lower sales prices of production.
The following table sets forth production and price information for the six
months and three months ended October 31, 1997 and 1996.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended October
October 31 31
__________________ _________________________
1997 1996 1997 1996
_________________________________________________
<S> <C> <C> <C> <C>
Net Bbls Oil 4,354 769 7,295 1,737
Avg. Price Bbl $18.83 $22.33 $18.68 $21.02
Net Mcf Gas 4,585 3,046 8,249 6,163
Avg. Price per Mcf $2.44 $1.94 $2.08 $1.91
</TABLE>
Lease operating expenses. Lease operating expenses increased by $228,051
to $264,155 for the six months ended October 31, 1997 compared with $36,104 for
the 1996 period. Lease operating expenses for such period were 153 percent
of oil and gas revenues compared with 77 percent of oil and gas revenues for
the 1996 period. Lease operating expenses were $144,301 for the three months
ended October 31, 1997, which represents an increase of $127,892 compared to
$16,409 for the 1996 period. Lease operating expenses for such period were
136 percent of oil and gas revenues compared with 73 percent of oil and gas
revenues for the 1996 period. The increases in lease operating expenses as a
percentage of revenue were due to the implementation of a polymer water flood
on the East Milham Sand Unit and plugging costs for unprofitable wells. NGT
expects lease operating costs to decline substantially as a percentage of
revenues in future periods because its planned reworks of East Milham Sand
Unit and Waggoner M are complete. NGT has commenced polymer injection in the
East Milham Sand Unit and is investigating water flood patterns on Waggoner M
in anticipation of commencing polymer injection.
Depreciation, depletion and amortization. Depreciation, depletion and
amortization ("DDA") increased by $91,721 to $113,605 for the six months ended
October 31, 1997 compared with $21,884 for the 1996 period. DDA for such
period was 66 percent of oil and gas revenues compared with 47 percent of oil
and gas revenues for the 1996 period. DDA was $67,021 for the three months
ended October 31, 1997, which represents an increase of $56,320 compared to
$10,701 for the 1996 period. DDA for such period was 63 percent of oil and
gas revenues compared with 48 percent of oil and gas revenues for the 1996
period. During all periods reported NGT recorded a depletion cost of $8.85
per barrel, and the increases in DDA as a percentage of revenue for the 1997
periods were due to lower market prices for oil during the 1997 periods,
partially offset by higher market prices for gas.
Professional fees. Professional fees of $114,337 and $67,985 for the six
months and three months ended October 31, 1997, respectively, were primarily
due to legal and accounting services with respect to NGT's loan and pending
share exchange with Lyric and the Information Statement for the Special
Meeting to be held for Lyric shareholders to approve certain matters in
connection with the Share Exchange.
Consulting fees. Consulting fees of $75,000 and $52,500 for the six
months and three months ended October 31, 1997, respectively, were
attributable to financial advisory services rendered in connection with an
employment contract with an officer of a subsidiary, which officer's
employment with such subsidiary was terminated in September 1997, at which
time the remaining unamortized portion of such fees was charged to expense.
Personnel costs. Personnel costs of $113,555 and $63,948 for the six
months and three months ended October 31, 1997 were attributable to the
addition of approximately five employees in connection with the establishment
of new office headquarters in Dallas, Texas in April 1997.
Rent. NGT recorded zero rent expense for three months ended October 31,
1997 compared with $1,050 for the 1996 period. Rent expense for the six months
ended October 31, 1997 was $9,148, which represents an increase of $7,048, or
336 percent, over the 1996 period. Rent increased for the six month period
due to NGT's relocation to larger offices in April 1997. However, during the
second quarter, NGT reached an agreement with a related party with which it
shares the Dallas office for the related party to reimburse one-half of the
rent and telephone expenses retroactive to April 1997. This retroactive
reimbursement led to NGT recording no rent expense for the second quarter.
Director Fees. Director fees of $20,833 and $8,333 for the six months
and three months ended October 31, 1996, respectively, were attributable to the
amortization expense associated with the issuance of stock in October 1993 to
a Director as compensation for his services for three years. Such fees were
fully amortized prior to fiscal 1998.
Travel. Travel expenses for the six months and three months ended
October 31, 1997 of $18,556 and $11,328 were attributable to management's
meetings with business partners and professionals associated with capital
raising efforts and increasing the asset base of the company.
Other expenses. Other expenses of $21,042 for the six months ended
October 31, 1997 were primarily attributable to the relocation to larger
offices and public relations expenses.
Loss on abandonment of assets. In September 1997, NGT learned that its
purchase of a license to blend an alternative gasoline and related assets from
Mobile Americlean Ltd. had been induced by fraudulent misrepresentations on
the part of Mobile Americlean's principal, Terry Huston, concerning the
prospects for establishing a blending operation in Mobile, Alabama based upon
the license agreement. See further discussion under Part II, Item 1, "Legal
Proceedings." As a result of these discoveries, NGT determined to abandon
its plans for establishing a fuel blending operation based upon the assets
acquired from Mobile Americlean. The license, which was carried at $346,000,
and the equipment, carried at $40,000, were therefore written off and
expensed during the three months ended October 31, 1997.
Interest expense. Interest expense of $167,818 and $86,853,
respectively, for the six months and three months ended October 31, 1997 was
primarily attributable to the assumption in April 1997 of the $3 million note in
connection with NGT's acquisition of Interior Energy, Inc.
Net loss. Net loss for the six months ended October 31, 1997 increased
$1,069,187, or 2322 percent, to $1,115,234 compared to $46,047 for the 1996
period. Net loss was $778,170 for the three months ended October 31, 1997,
which represents an increase of $748,323, or 3821 percent, compared with
$19,847 in the 1996 period. The increases in net loss were primarily due to
the abandonment of the fuel blending license and equipment, increased lease
operating expenses, depreciation, depletion and amortization, professional
fees, consulting fees, personnel costs, and interest expense partially offset
by increased oil and gas revenues and decreased director fees.
Liquidity and Capital Resources
On October 31, 1997, NGT had $340,000 in cash on hand. NGT's primary
sources of liquidity are proceeds from stock issuances, advances from related
parties and borrowings. NGT's principal cash needs are for the acquisition,
exploration and development of oil and gas properties.
Cash flow. NGT's net cash provided by operating activities increased
$804,167 to $804,429 for the six months ended October 31, 1997 compared with
$262 in the 1996 period primarily due to much larger accounts payable financing
during the 1997 period, partially offset by the larger net loss for the 1997
period. Net cash used in investing activities increased $1,845,476 to
$1,850,063 for the six months ended October 31, 1997 compared to $4,587 in
the 1996 period due to greatly increased lease and drilling costs for new
wells and purchases of lease and well equipment during the 1997 period.
Net cash provided by financing activities was $569,192 for the six months
ended October 31, 1997, consisting of proceeds from the issuance of stock and
advances from related parties, partially offset by note payments, compared
with net cash provided of $4,188 in the 1996 period attributable to advances
from related parties less note payments.
NGT's accounts payable balance significantly increased during the six
months ended October 31, 1997. This is primarily due to drilling activities.
The total accounts payable includes $1,498,959 payable to Wagman Petroleum,
Inc. ("WPI") for drilling and lease operating expenses incurred since
February 1997. At this time, WPI, a related party due to common management,
is content to wait for NGT to be able repay these costs. NGT plans to have a
public offering in order to fund its planned activities and to repay WPI for
the work already done. Timing for this offering is dependent on several
factors. There is no assurance that this method of funding will be
successful in raising the capital necessary to repay past costs
as well as to fund activities planned for the future. Should NGT fail to
raise the necessary capital to fund its planned activities, cash flows are not
expected to be sufficient to fund them and portions of the assets would, in all
likelihood, not be realizable. No accounting adjustments have been made to
reflect this outcome, which is not anticipated.
Capital expenditures. NGT's expenditures for the purchase of fixed
assets and oil and gas properties are the primary use of its capital
resources. NGT has committed to contribute up to $700,000 for the drilling
of two wells on the Prima Prospect by Sundance Producers LLC, a limited
liability company owned fifty percent by NGT and fifty percent by Trans
Energy, Inc. (see discussion under "Material Events" below). NGT's current
business plan anticipates additional material capital expenditures during the
fiscal year ended April 30, 1998, subject to the availability of capital.
NGT raised $385,000 through the sale of 55,000 shares of common stock to its
president during the quarter ended October 31, 1997, and raised an additional
$1,000,000 through the sale of $166,667 shares of common stock to an
unrelated party in December 1997. This capital will be used to fund
operations, capital expenditures and to pay off some of NGT's debt. NGT
anticipates raising additional capital in the next twelve months for
additional capital expenditures through a public or private sale of
securities and/or through bank loans. The amount of future capital
expenditures will depend upon a number of factors including the impact of oil
and gas prices on investment opportunities, the availability of capital and
the success of its development activity which could lead to funding
requirements for further development.
Other Material Events
During August 1997, NGT loaned $160,00 to Kodiak Corporation for planned
drilling activities. At the end of September 1997, NGT converted its loan to
a forty percent equity ownership interest in Kodiak. In November 1997, NGT
exchanged its equity interest in Kodiak for an equity interest in Mirae LLC,
which was formed to hold a royalty interest in some of Kodiak's production
and some of Kodiak's oil and gas leases, as well as other leases. Mirae
currently holds the royalty interest and a number of leases in Wilbarger
County, and has commenced drilling on one of the leases using funds loaned by
NGT.
In December 1997, NGT entered into an agreement for a joint venture with
Trans Energy, Inc., a Nasdaq company engaged in oil and gas exploration and
distribution. The agreement calls for the formation of a limited liability
company, called Sundance Producers LLC, to jointly own and develop oil and gas
properties. Trans Energy will contribute to Sundance its fee ownership in
approximately 1,100 acres in Crook County, Wyoming. NGT will contribute up to
$700,000 for the drilling of two wells on the property. In addition, NGT
granted Trans Energy an option to require NGT to contribute to Sundance one
half of its working interest in its lease for the Miller Ranch property in
Crockett County, Texas if matched by a $150,000 cash contribution from Trans
Energy. Sundance will be owned fifty percent by each of NGT and Trans Energy,
and will be managed jointly.
Effects of Inflation and Changing Prices
NGT's results of operations and cash flows are affected by changing oil
and gas prices. At present, NGT does not expect that changes in the rates of
overall economic growth or inflation will significantly impact product prices
in the short-term. While gas prices seem most dependent on weather in North
America and corresponding usage, oil prices are more subject to global
economic forces and supply. NGT cannot predict the extent of any such effect.
If oil and gas prices increase, there could be a corresponding increase in
the cost to NGT for drilling and related services as well as an increase in
revenues.
Cautionary Statement with Regard to Forward Looking Information
The matters discussed in the above Plan of Operation of Lyric and
Management's Discussion of Analysis of Financial Condition and Results of
Operations of NGT, when not historical matters, are forward looking statements
which involve a number of risks and uncertainties which could cause actual
events and results to differ materially from projected or anticipated events or
results. Such factors include, among other things, the speculative nature of
oil and gas exploration, the volatile markets for oil and gas, uncertainties
in production and reserve estimates, environmental and governmental
regulations, the availability of financing, particularly equity financing,
the ability of Lyric to establish a trading market for its stock, force
majeure events and other risk factors as described from time to time in
reports filed by Lyric with the Securities and Exchange Commission.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See the Company's Annual Report on Form 10-KSB/A for the fiscal
year ended April 30, 1997.
On December 9, 1997, Terrence Huston, a former employee of NGT and
its subsidiary, filed an action against NGT and Brent Wagman in
the Circuit Court of Baldwin County, Alabama, seeking unspecified
compensatory and punitive damages for claims arising out of the
termination of Mr. Huston's employment with NGT. NGT is
considering its options with respect to this action, but believes
the action has no merit and will not have a material adverse
effect on NGT.
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
See "Other Material Events" above.
Item 6. Exhibits And Reports On Form 8-K
(a) Exhibits
The exhibits included in the Company's Annual Report on Form
10-KSB for the fiscal year ended April 30, 1997 are incorporated
herein by reference.
10.24 Agreement between Natural Gas Technologies, Inc. and
Trans Energy, Inc. dated December 4, 1997
27.1 Financial Data Schedule
(b) Reports On Form 8-K
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
LYRIC ENERGY, INC.
Date: December 22, 1997 By: /S/ BRENT WAGMAN
____________________
Brent Wagman, Chairman of the Board
<PAGE>
Exhibit 10.24
AGREEMENT
This Agreement is entered into this 4th day of December, 1997, by and
between Natural Gas Technologies, Inc., a Texas corporation ("NGT") and Trans
Energy, Inc., a Nevada corporation ("TEI").
1. Purpose of Agreement. NGT and TEI shall cause the formation of a
Colorado Limited Liability Company ("LLC") for the purpose of jointly holding
and operating oil and gas properties.
2. TEI Capital Contribution. TEI shall contribute to the LLC all of its
right, title and interest in and to the oil and gas prospect known as the
Prima Prospect located in the Powder River Basin in Wyoming (the "Prima
Property") together with all of TEI's technical data concerning the Prima
Property. TEI's interest in the Prima Property is more particularly described
on Exhibit A hereto.
3. NGT Capital Contribution. NGT shall contribute to the LLC sufficient
cash for the drilling of two completed wells on the Prima Property, subject to
customary contingencies concerning abnormal drilling conditions and force
majeure occurrences. The amount of NGT's cash contribution shall in no event
exceed $700,000.
4. Ownership Interests. In return for their respective contributions,
each of NGT and TEI shall receive fifty percent of the total outstanding
membership units in the LLC.
5. Management. The LLC shall be managed by two managers. Each of NGT and
TEI shall have the right to appoint one manager. All actions of the LLC must be
approved by both managers. All funds of the LLC shall be held in accounts in
the name of the LLC, and a separate account shall be established for each oil
and gas property of the LLC. The signature of both managers shall be
required to write checks from any account of the LLC in excess of $10,000.
The compensation of the managers, if any, must be agreed to by both parties.
6. Bankruptcy or Receivership. In the event that either NGT or TEI shall
be the subject of a petition for bankruptcy or receivership, which petition is
not discharged within thirty days, the party which is not the subject of the
petition shall have the right to immediately replace the manager appointed by
the other party, and shall thereafter have the right to appoint both
managers. The party subject to such petition shall thereafter have no right
to management of the LLC except as may be required by applicable law, but
shall continue to participate in distributions to the extent of its unit
ownership in the LLC.
7. Disposition of Revenues. Thirty percent of all revenues from the LLC
after payment of ordinary operating expenses shall be retained by the LLC for
capital expansion. The remaining seventy percent of revenues shall be
distributed monthly to the parties in accordance with their respective unit
interests. Any deviation from the foregoing shall require the consent of
both parties.
8. Capital Contributions. In the event that the LLC shall be required to
make a capital contribution to any oil and gas property in which it holds an
interest, or in the event that both parties deem it advisable to invest
capital in such a property, the LLC shall use retained earnings to the extent
such earnings are available. Any additional capital contributions shall be
provided pro rata by the parties. In the event one of the parties (the
"Defaulting Party") is unwilling or unable to make its entire capital
contribution within thirty days of the call, the other party (the "Paying
Party") may make that portion of the contribution not made by the Defaulting
Party (the "Excess Contribution"). In such case, notwithstanding the
provisions of section 7, the Paying Party shall be entitled to
receive in addition to its ordinary share of revenues from the particular
capital project for which the contribution was made, an amount equal to three
times the Excess Contribution out of the share of revenues from such capital
project which would otherwise be payable to the Defaulting Party. Thereafter,
the provisions of section 7 shall apply to all revenues from such projects.
9. Representations and Warranties. TEI hereby represents and warrants to
NGT as a material inducement to NGT that it has good title free and clear of all
encumbrances or other agreements not disclosed on Exhibit A to all of the
rights specified on Exhibit A and has an AFE for the Prima Property. TEI shall
supply evidence to NGT of the foregoing reasonably satisfactory to NGT within
seven days after execution of this Agreement, and NGT shall not be obligated
to make its capital contribution until it has received such evidence.
10. Option to Purchase Miller Ranch. TEI shall have the option to require
NGT to contribute one half of its current working interest in the Miller Ranch
property located in Crockett County, Texas (the "Miller Ranch Property") to
the LLC. Such option may be exercised by TEI contributing $150,000 cash to the
LLC. Such option shall expire and be of no further force and effect on March 31,
1998. If such option is exercised, the LLC shall be entitled to all net revenues
received on such property between the date of this Agreement and the date of
exercise.
11. Right of First Refusal. In the event one party shall receive a bona
fide offer to purchase any or all of its membership units from a person or
entity other than a controlled subsidiary or affiliate of such party, the
other party shall have thirty days to exercise a right of first refusal to
purchase such units on the same terms as those offered by the bona fide offeree.
12. Disputes. Any disagreements of the parties which cannot be resolved
through negotiation or non-binding mediation shall be submitted to binding
arbitration in Dallas, Texas pursuant to the rules of the American Arbitration
Association.
13. Special Provision for Prima Well Site. NGT acknowledges that TEI has
been engaged in negotiations for the sublease of a 40-acre drill site on the
Prima Property located on the Northeast of the Southeast of Section 8,
Township 67 West, Range 54 North. In the event TEI is able to consummate a
sublease of such drill site on or before the date that the LLC penetrates the
target pay zone(s) of its first well, TEI shall be entitled to retain 100
percent of the proceeds from such sublease. Otherwise, such drill site shall
be contributed to the LLC.
14. Special Provision for Miller Ranch. TEI acknowledges that NGT is
engaged in negotiations for the sale of fifty percent of its current working
interest in the Miller Ranch Property. NGT shall have the right as part of
such sale to obtain a commitment of the buyer to contribute up to $1,000,000
for the drilling of wells which carries NGT's pro rata share of the expenses
for such wells. NGT shall have exclusive rights to its retained fifty percent
working interest in any such wells drilled by March 31, 1998 notwithstanding
the exercise by TEI of the option set forth in section 10.
15. Articles of Organization; Operating Agreement. The parties shall
diligently proceed to prepare and execute Articles of Organization and an
Operating Agreement for the LLC reflecting the foregoing terms and such other
terms as are customary for a limited liability company engaged in the business
of the LLC. Each party shall negotiate in good faith toward the completion of
these documents without unreasonable delay.
16. Other Provisions.
a. Successors and Assigns. Subject to section 6, this Agreement
shall be binding upon and inure to the benefit of the parties and their
respective successors and assigns. Without limiting the generality of the
foregoing, NGT's interests in this Agreement shall be succeeded to by Lyric
Energy, Inc. upon consummation of a share exchange between NGT and Lyric
Energy, Inc.
b. Cooperation. Subject to the terms and conditions herein provided,
each of the parties hereto agrees to use all reasonable efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate the transactions contemplated by this Agreement.
c. Confidentiality; Public Statements. The parties shall keep the
terms of this Agreement confidential except to the extent that each is
required by applicable law to disclose such terms. For any such disclosure,
each party shall consult and cooperate with each other and agree upon the
terms and substance of such disclosures.
d. Entire Agreement; Amendment. This Agreement constitutes the
entire agreement between the parties with respect to the subject matter
hereof, and supersedes all prior written or oral understandings between the
parties. Any amendment or waiver of this Agreement shall require the written
consent of the party to be charged.
e. No Assignment. This Agreement may not be assigned without prior
consent of all parties hereto.
f. Headings. The headings are included for convenience only and
shall not affect the construction or interpretation of this Agreement
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the duly authorized officers of the parties hereto on the date first
hereinabove written.
NATURAL GAS TECHNOLOGIES, INC.
By:/s/ Brent Wagman
__________________________________
Brent Wagman, President and Director
By:/s/ Warren Donohue
__________________________________
Warren Donohue, Vice President and
Director
TRANS ENERGY, INC.
By: Loren E. Bagley
______________________________________
Loren E. Bagley, President and Director
By: William F. Woodburn
______________________________________
William F. Woodburn, Vice President
and Director
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> OCT-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 12,089
<BONDS> 0
0
0
<COMMON> 2,724,222
<OTHER-SE> (2,736,311)
<TOTAL-LIABILITY-AND-EQUITY> (12,089)
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 12,089
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,089)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
