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FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from to
Commission file number 1-12108
GULFWEST OIL COMPANY
(Exact name of Registrant as specified in its charter)
Texas 87-0444770
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
2644 Sherwood Forest Plaza
Suite 229
Baton Rouge, Louisiana 70816
(Address of principle executive offices) (zip code)
(504) 293-1100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(D) of the Securities Exchange Act of 1934 during
the preceding 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___
The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date, May 13, 1996, was 1,087,325 shares of
Class A Common Stock, $.001 par value.
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<TABLE>
GULFWEST OIL COMPANY
FORM 10-Q FOR THE QUARTER ENDED
MARCH 31, 1996
<CAPTION>
Page of
Form 10-Q
<S> <C>
Part I: Financial Statements
Item 1. Financial Statements
Consolidated Balance Sheets, March 31, 1996,
and December 31, 1995 3
Consolidated Statements of Operations-for the three
months ended March 31, 1996, and 1995 5
Consolidated Statements of Cash Flows-for the three
months ended March 31, 1996, and 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8
Part II: Other Information
Item 1. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on 8-K 10
Signatures 11
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
GULFWEST OIL COMPANY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
<CAPTION>
March 31, December 31,
1996 1995
ASSETS
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents ............................................ $ 320,165 $ 10,548
Accounts Receivable - Trade, Net of Allowance for Doubtful
Accounts of -0- and $25,0000 in 1996 and 1995, respectively ........ 208,989 153,619
Accounts and Notes Receivable - Related Parties ...................... 7,150 15,100
Prepaid Expenses ..................................................... 38,779 37,592
Total Current Assets ............................................... 575,083 216,859
Oil & Gas Properties, Using the Successful Efforts Method of Accounting:
Undeveloped Properties ............................................... 37,910 37,910
Developed Properties ................................................. 3,342,430 3,340,419
Gathering Systems .................................................... 20,048 20,048
Other Property and Equipment ........................................... 278,864 278,864
Less - Accumulated Depreciation, Depletion,
and Amortization ................................................... (873,588) (783,375)
Net Oil and Gas Properties and
Other Property and Equipment ..................................... 2,805,664 2,893,866
Long-Term Notes Receivable - Related Party, Net ........................ 103,556 98,675
Total Assets ....................................................... $ 3,484,303 $ 3,209,400
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
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<TABLE>
GULFWEST OIL COMPANY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
<CAPTION>
March 31, December 31,
1996 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Current Portion of Long-Term Debt ............................................ $ 213,500 $ 59,906
Notes Payable ................................................................ 2,500 87,675
Accounts Payable - Trade ..................................................... 304,672 329,495
Accrued Expenses ............................................................. 58,408 66,489
Total Current Liabilities .................................................. 579,080 543,565
Long-Term Debt, Net of Current Portion ......................................... 1,401,460 1,451,938
Long-Term Debt, Related Parties ................................................ 226,101 226,101
Commitments and Contingencies .................................................. -- --
Stockholders' Equity:
Preferred Stock, Par Value at $.01, 10,000,000 Shares Authorized, 1,000 and
-0- shares issued and outstanding
in 1996 and 1995, respectively ............................................. 500,000 --
Common Stock, Par Value at $.001, 20,000,000 Shares
Authorized, 1,087,325 and 1,086,125 Shares Issued and Outstanding
in 1996 and 1995, respectively ............................................. 1,087 1,086
Additional Paid-in Capital ................................................... 3,611,513 3,596,514
Retained Deficit ............................................................. (2,834,938) (2,609,804)
Total Stockholders' Equity ................................................. 1,277,662 987,796
Total Liabilities and Stockholders'
Equity ................................................................... $ 3,484,303 $ 3,209,400
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
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<TABLE>
GULFWEST OIL COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<CAPTION>
1996 1995
<S> <C> <C>
Revenues:
Oil and Gas Sales .............. $ 202,507 $ 132,096
Gathering System Income ........ 1,203 4,946
Prospect Generation Fees ....... -- 30,000
Management Fees ................ 38,345 --
Total Revenues ............... 242,055 167,042
Costs and Expenses:
Lease Operating Expenses ....... 94,382 91,036
Depreciation and Depletion ..... 90,214 69,173
Lease Abandonment .............. 8,178 --
General and Administrative ..... 221,724 224,202
Total Costs and Expenses ..... 414,498 384,411
Loss From Operations ............. (172,443) (217,369)
Other Income and Expense:
Interest Income ................ 7,017 17,104
Interest Expense ............... (59,708) (14,158)
Total Other Income and Expense (52,691) 2,946
Net Income (Loss) Before Taxes ... (225,134) (214,423)
Income Tax Provision ............. -- --
Net Income (Loss) ................ $(225,134) $(214,423)
Earnings (Loss) Per Share
and Common Stock Equivalents $ (.21) $ (.21)
Weighted Average Number of Shares 1,087,074 1,000,000
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
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<TABLE>
GULFWEST OIL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<CAPTION>
1996 1995
<S> <C> <C>
Cash Flows Provided (Used) By Operating Activities:
Net Income (Loss) ................................................. $(225,134) $(214,423)
Adjustments to Reconcile Net Income (Loss) to Net
Cash Provided (Used) by Operating Activities:
Depreciation, Depletion, and Amortization ..................... 90,213 69,173
(Increase) Decrease in Accounts Receivable - Related Party, Net 3,069 --
(Increase) Decrease in Accounts Receivable - Other, Net ....... (55,370) 20,576
(Increase) Decrease in Prepaid Expenses ....................... (1,187) 2,326
(Decrease) in Accounts Payable ................................ (24,823) (9,176)
(Decrease) in Accrued Expenses ................................ (8,081) (6,152)
Net Cash Provided (Used) By Operating Activities ............ (221,313) (137,676)
Cash Flows Provided (Used) By Investing Activities:
Purchase of Oil and Gas Properties ................................ (2,011) (16,095)
Sale of Oil and Gas Properties .................................... -- 35,125
Net Cash Provided (Used) By Investing Activities ............ (2,011) 19,030
Cash Provided (Used) By Financing Activities:
(Increase)in Accounts and Notes Receivable - Related Party ........ -- (6,992)
(Increase) in Other Assets ........................................ -- (36,895)
(Payment) on Debt ................................................. (90,392) (1,453)
Amortization of Prepaid Interest .................................. 8,333 --
Proceeds From Notes Payable - Related Parties ..................... -- 70,000
Proceeds From Notes Payable - Other ............................... 100,000 72,934
Proceeds From Sale of Common and Preferred Stock .................. 515,000 --
Net Cash Provided (Used) By Financing Activities ............ 532,941 97,594
Increase (Decrease) in Cash and Cash Equivalents .................... 309,617 (21,052)
Cash and Cash Equivalents, Beginning of Period ...................... 10,548 30,861
Cash and Cash Equivalents, End of Period ............................ $ 320,165 $ 9,809
Cash Interest Paid .................................................. $ 34,792 $ 368
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE>
GULFWEST OIL COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
(UNAUDITED)
1. During interim periods, GulfWest Oil Company ("the Company") follows
the accounting policies set forth in its Annual Report on Form 10-K
filed with the Securities and Exchange Commission. Users of financial
information produced for interim periods are encouraged to refer to the
footnotes contained in the Annual Report when reviewing interim
financial results.
In management's opinion, the accompanying interim financial statements
contain all material adjustments, consisting only of normal recurring
adjustments necessary to present fairly the financial condition, the
results of operations, and the statements of cash flows of GulfWest Oil
Company for the interim periods.
2. As of March 31, 1996, the Company had receivables from Williams
Southwest Drilling Company ("Williams") in the amount of $274,000,
offset by reserves of $203,000 or a net receivable of $71,000. Williams
is currently negotiating the sale of a drilling rig under a lease
purchase contract. When the sale is completed, the Company should
receive a payment in an amount approximating the net receivable.
The Company also has two note receivables from The Holifield Companies
("Holifield") in the gross amount of $184,000 and a net amount of
$13,000. Management is currently in negotiations with Holifield to
settle one note for the transfer of an asset valued at $130,000. After
this transaction is completed, Management intends to negotiate a
settlement for the remaining note.
3. On January 23, 1996, the Company received $100,000 as final funding of
a $150,000 note payable to an individual due in July 1997. The initial
funding of $50,000 was received in December 1995. At the completion of
the funding, the individual received warrants to purchase 15,000 shares
of common stock at $1.00 per share. The warrants were exercised during
March 1996.
4. On January 25, 1996, the Company issued warrants to purchase 175,000
shares of common stock at $1.50 per share to a financial advisor for
assistance in arranging additional financing for the Company. Also, on
February 5, 1996, the Company issued warrants to purchase 40,000 shares
of common stock at $2.25 per share to a public relations consultant.
None of these warrants has been exercised to date.
5. On March 1, 1996, the Company issued a Private Placement Offering of
Convertible Preferred Stock with a stated dividend rate of 10% on a
cumulative basis, as declared. During the first quarter, 1,000 shares
of the preferred stock were sold for $500,000. (See "Item 2.
Management's Discussion and Analysis of Financial Condition and Results
of Operations-Financial Condition and Capital Resources".)
6. On March 27, 1996, the Company entered into agreements with two of its
officers to convert deferred compensation in the amount of $47,340 to
notes payable due April 1, 1997. Additionally, it entered into
agreements with ten existing note holders to extend the due date on
their notes to April 1, 1997 and pay accrued interest of $28,450 on
that date.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
GulfWest Oil Company ("GulfWest" or the "Company") is an independent oil and gas
company primarily engaged in the acquisition of producing oil and gas properties
with proved reserves which have the potential for increased value through
continued development and enhanced recovery technology. Its objective is to
significantly increase the production of such properties through workovers of
the wells, horizontal drilling from existing wellbores, development drilling or
other enhancement operations. At March 31, 1996, the Company owned working
interests in 56 producing oil and gas wells.
The Company's subsidiary, WestCo Producing Company ("WestCo"), currently
operates approximately one-half of the properties in which the Company owns
interests. As the Company continues to grow through acquisitions, it intends to
purchase a significant working interest in each property so that WestCo can
become the operator.
On July 17, 1995, the Company acquired from Sikes Producing, Inc. ("SPI"),
beneficial ownership of an additional 42.5% of the working interests in 31
proved producing oil and gas properties located in the Madisonville Field,
Texas. Under a Restructuring Agreement, GulfWest contributed its 37.5% ownership
in a gas pipeline gathering system and assumed a $640,000 nonrecourse note as
payment for the working interests. GulfWest also purchased certain additional
working interests in Madisonville from SPI for a purchase price of $100,000,
with $20,000 paid in cash at closing and a promissory note for $80,000 which was
subsequently paid in full in 1996. It was also agreed that the Company's
subsidiary, WestCo would assume operations of the 31 wells, effective August 1,
1995. These actions increased the Company's proved reserves by 44% over December
31, 1994 and provided additional operating income to the subsidiary, in that
WestCo will receive a fee of $500 per month per producing well.
Results of Operations
Comparative results of operations for the periods indicated are discussed below.
Three-Month Period Ended March 31, 1996 compared to Three Month Period Ended
March 31, 1995.
Oil and gas sales for the first quarter increased from $132,096 in 1995 to
$202,507 in 1996, due primarily to the acquisition of the additional working
interests from SPI discussed above. During this period in 1995, the Company
earned $30,000 in prospect generation fees by selling a participation in 3 wells
to a third party. In 1996, WestCo has received $38,345 in management fees for
operating the 24 producing wells in the Madisonville Field.
Lease operating expenses for the period in 1996 remained at the same level as
1995 even though the Company's ownership in certain wells increased through the
acquisition from SPI. The increase in operating expenses for the newly acquired
interests was offset by decreases due to 1) certain unproductive wells being
plugged and abandoned in 1995; 2) successful workovers and recompletions on
certain wells in 1995; and, 3) cost control and reduction measures implemented
by WestCo following the assumption of operations in August 1995.
Depreciation and depletion increased for the period due to the acquisition of
the additional working interests from SPI.
Interest expense for the first quarter of 1996 compared to 1995 increased due to
the issuance of $500,000 in debentures with an annual interest rate of 9 1/2%, a
$150,000 note payable to an individual with an annual interest rate of 7%, and
the assumption of a $640,000 nonrecourse note with an annual interest rate of 8%
in conjunction with the purchase of the interests from SPI.
8
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Financial Condition and Capital Resources
During the first quarter of 1996, the Company raised an additional $600,000 in
the form of $100,000 as final funding of a $150,000 note payable to an
individual and the issuance of Convertible Preferred Stock for $500,000. Part of
these funds were used to pay trade creditors and the remainder is to be used as
a cash reserve while the Company continues its efforts to increase cash flow. At
March 31, 1996, the Company had total assets of $3,484,303, negative working
capital of $3,997 and shareholders' equity of $1,277,662, compared to December
31, 1995 when the Company had total assets of $3,209,400, negative working
capital of $326,706 and shareholders' equity of $987,796.
The Convertible Preferred Stock was sold through a Private Placement Offering
(the "Offering"), dated March 1, 1996, for a maximum of $5,000,000 and a minimum
of $500,000. The Offering is for a maximum of ten units and a minimum of one
unit, each unit consisting of 1,000 shares of 10% Convertible Class A Preferred
Stock, $.01 par value. The Preferred Stock shall be entitled to receive
dividends on a cumulative basis, payable quarterly as declared, at the rate of
10% per annum. At any time after the issuance of the Preferred Shares, the
Company may redeem the shares, in whole or in part, at 120% of the price paid by
the holder. At any time after 12 months from the date of purchase, the holder
may convert the Preferred Shares, in whole or in part, to common stock for a
price equal to the greater of (a) 65% of the average closing bid price of the
Company's common stock for the period of 30 consecutive trading days immediately
preceding the notification of intention to convert or (b) $3.50 per share of the
common stock. The holder must notify the Company 30 days prior to such
conversion, at which time or any time prior to such conversion the Company may
redeem the Preferred Shares.
Management's plans for 1996 for growth and profitability are to take several
measures to increase production and operating revenues, including: 1) acquiring
ownership and operations of additional properties; 2) increasing cash flow from
existing properties by recompleting and enhancing certain wells; and, 3)
drilling horizontally from existing wellbores to develop proved reserves. The
Company intends to raise the necessary capital for these projects through the
sale of additional shares of preferred and/or common stock, the arrangement of
joint ventures with outside investors, and the securing of nonrecourse
financing. The Company's ability to succeed in these goals is subject to a
number of variables, including production levels, oil and gas market prices, and
the availability of funds. There can be no assurances that operations and other
capital resources will increase sufficiently to allow the Company to become cash
flow positive in 1996.
9
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Joe L. Bruton V. Moon Operating, Inc., FSDH, Inc., formerly known as
and d/b/a GulfWest Drilling Company, Roy Williams and GulfWest Oil
Company, Cause No. 94-04325-00-0-C, 94th District Court of Nueces
County, Texas. The Plaintiff has asserted a cause of action for
personal injury received at a drill site in August 1993 while an
employee of the Company's former subsidiary. The Company was added as a
Defendant to this lawsuit on March 10, 1995 based upon the theory that
the Company was the alter ego of the subsidiary at the time of the
alleged incident. It is the opinion of Company's legal counsel, based
upon their review and representations of management, that the Plaintiff
will be unsuccessful and has no reasonable expectation of success
against the Company.
Enterra Oilfield Rental Company V. GulfWest Oil Company, FSDH, Inc. And
Williams Southwest Drilling Company, Inc., Cause No. 649954, County
Civil Court at Law #2, Harris County, Texas. The Plaintiff has asserted
a cause of action for collection of a past due account from FSDH, Inc.
In the amount of $70,269.08 plus interest and legal fees. The Company
was added as a defendant to this lawsuit on July 20, 1995 asserting
that, since FSDH (formerly GulfWest Drilling Company) had forfeited its
charter pursuant to the Texas Tax Code, GulfWest and Williams, as the
stockholders of FSDH, are liable for the past due account. The Company
has taken the position that since GulfWest is not liable for this
claim. It is the opinion of Company's legal counsel that the Plaintiff
has no reasonable basis for a successful claim against the Company and
therefore, no value should be placed on this claim.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the shareholders during the
first quarter of 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits -
None
(b) Form 8-K -
None
10
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SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
GULFWEST OIL COMPANY
(Registrant)
Date: May 14, 1996 By: /s/ Jim C. Bigham
Jim C. Bigham
Secretary
Date: May 14, 1996 By: /s/ John F. Bendure
John F. Bendure
Vice President of Finance
and Treasurer
11
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GULFWEST OIL
COMPANY'S QUARTERLY REPORT FILED ON FORM 10-Q FOR THE QUARTER ENDED MAR-31-96
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK>0000813779
<NAME>GULFWEST OIL COMPANY
<MULTIPLIER>1
<CURRENCY>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 320,165
<SECURITIES> 0
<RECEIVABLES> 208,989
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 575,083
<PP&E> 3,669,252
<DEPRECIATION> (873,588)
<TOTAL-ASSETS> 3,484,303
<CURRENT-LIABILITIES> 579,080
<BONDS> 0
0
500,000
<COMMON> 1,087
<OTHER-SE> 776,575
<TOTAL-LIABILITY-AND-EQUITY> 3,484,303
<SALES> 202,507
<TOTAL-REVENUES> 242,055
<CGS> 0
<TOTAL-COSTS> 414,498
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (59,708)
<INCOME-PRETAX> (225,134)
<INCOME-TAX> 0
<INCOME-CONTINUING> (225,134)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (225,134)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
