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 June 30, 1997
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.
NO YES X
The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date, August 14, 1997, was 1,753,428 shares
of Class A Common Stock, $.001 par value.
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GULFWEST OIL COMPANY
FORM 10-Q FOR THE QUARTER ENDED
JUNE 30, 1997
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Page of
Form 10-Q
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Part I: Financial Statements
Item 1. Financial Statements
Balance Sheets, June 30, 1997,
and December 31, 1996 3
Statements of Operations-for the three months
and six months ended June 30, 1997, and 1996 5
Statements of Cash Flows-for the six
months ended June 30, 1997, and 1996 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8
Part II: Other Information None
Signatures 11
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2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
GULFWEST OIL COMPANY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
(UNAUDITED)
<CAPTION>
June 30, December 31,
1997 1996
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ASSETS
Current Assets:
Cash and Cash Equivalents $ 251,944 $ 84,477
Accounts Receivable - Trade, Net of Allowance for Doubtful
Accounts of -0- in 1997 and 1996 671,312 612,439
Prepaid Expenses 67,719 2,343
Notes Receivable 100,000 -
Total Current Assets 1,090,975 699,259
Oil & Gas Properties, Using the Successful Efforts Method of Accounting:
Undeveloped Properties 109,234 37,910
Developed Properties 16,074,524 14,823,561
Other Property and Equipment 1,033,528 735,507
Less - Accumulated Depreciation, Depletion,
and Amortization (1,801,193) (1,249,472)
Net Oil and Gas Properties and
Other Property and Equipment 15,416,093 14,347,506
Long-Term Accounts and Notes Receivable -
Related Party, Net of Allowance for Doubtful Accounts
of $446,948 in 1997 and 1996 22,367 112,659
Total Assets $ 16,529,435 $15,159,424
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The accompanying notes are an integral part
of these consolidated financial statements.
3
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GULFWEST OIL COMPANY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
(UNAUDITED)
<CAPTION>
June 30, December 31,
1997 1996
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable - Trade $ 882,696 $ 1,018,419
Accrued Expenses 212,986 156,663
Current Portion of Long-Term Debt 2,903,813 1,702,208
Total Current Liabilities 3,999,495 2,877,290
Long-Term Debt, Net of Current Portion 8,593,047 8,352,941
Long-Term Debt, Related Parties 325,000 525,000
Total Long-Term Debt 8,918,047 8,877,941
Commitments and Contingencies - -
Stockholders' Equity:
Preferred Stock, Par Value at $.01, 10,000,000 Shares
Authorized, 5,065 and 4,621 shares Issued and Outstanding
In 1997 and 1996, respectively 51 46
Common Stock, Par Value at $.001, 20,000,000 Shares
Authorized, 1,753,428 and 1,611,154 Shares Issued and Outstanding
in 1997 and 1996, respectively 1,753 1,611
Additional Paid-in Capital 7,341,176 6,909,092
Retained Deficit (3,731,087) (3,506,556)
Total Stockholders' Equity 3,611,893 3,404,193
Total Liabilities and Stockholders'
Equity $ 16,529,435 $15,159,424
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The accompanying notes are an integral part
of these consolidated financial statements.
4
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GULFWEST OIL COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED
JUNE 30, 1997 AND 1996
(UNAUDITED)
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues:
Oil and Gas Sales $ 1,056,002 $ 272,090 $ 2,210,623 $ 474,597
Gathering System Income - 1,768 - 2,971
Well Servicing Revenues 269,827 - 494,817 -
Operating Overhead and Other Income 79,099 44,096 194,617 82,441
Total Revenues 1,404,928 317,954 2,900,057 560,009
Costs and Expenses:
Lease Operating Expenses 464,182 116,795 899,740 211,177
Cost of Well Servicing Operations 258,293 - 421,216 -
Depreciation and Depletion 318,953 91,538 551,721 181,752
Lease Abandonments - 77,518 - 85,696
General and Administrative 352,308 236,784 697,550 458,508
Total Costs and Expenses 1,393,736 522,635 2,570,227 937,133
Income (Loss) From Operations 11,192 (204,681) 329,830 (377,124)
Other Income and Expense:
Interest Income 8,618 8,600 17,392 15,617
Interest Expense (258,618) (55,855) (500,008) (115,563)
Total Other Income and Expense (250,000) (47,255) (482,616) (99,946)
Net Income (Loss) Before Taxes (238,808) (251,936) (152,786) (477,070)
Income Tax Provision - - - -
Net Income (Loss) $ (238,808) $ (251,936) $ (152,786) $ (477,070)
Earnings Per Share and Common Stock
Equivalents $ (.14) $ (.23) $ (.09) $ (.44)
Weighted Average Number of Shares 1,735,669 1,098,644 1,695,551 1,092,681
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
5
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GULFWEST OIL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
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1997 1996
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Cash Flows Provided (Used) By Operating Activities:
Net Income (Loss) $ (152,786) $ (477,070)
Adjustments to Reconcile Net Income (Loss) to Net
Cash Provided (Used) by Operating Activities:
Depreciation, Depletion, and Amortization 551,721 181,752
Lease Abandonments - 85,696
(Increase) in Accounts Receivable - Other, Net (58,873) (56,339)
(Increase) Decrease in Prepaid Expenses (65,376) 10,730
Increase (Decrease) in Accounts Payable - Other (135,723) 96,556
Increase (Decrease) in Accrued Expenses 56,323 (8,234)
Net Cash Provided (Used) By Operating Activities 195,286 (166,909)
Cash Flows Provided (Used) By Investing Activities:
Purchase of Oil and Gas Properties (1,322,287) (412,279)
Purchase of Equipment (298,021) (33,440)
Net Cash Provided (Used) By Investing Activities (1,620,308) (445,719)
Cash Provided (Used) By Financing Activities:
Amortization Prepaid Interest - 16,667
(Increase) Decrease in Accounts and Notes Receivable - Related Party 90,292 (31,245)
(Increase) in Notes Receivable (100,000) -
(Payments) on Notes Payable - Related Parties (200,000) (23,668)
Proceeds From Notes Payable - Other 2,452,083 122,875
(Payment) on Debt (1,010,372) (173,471)
Proceeds From Sale of Common and Preferred Stock 432,231 881,675
(Payment) of Dividends (71,745) -
Net Cash Provided (Used) By Financing Activities 1,592,489 792,833
Increase (Decrease) in Cash and Cash Equivalents 167,467 180,205
Cash and Cash Equivalents, Beginning of Period 84,477 10,548
Cash and Cash Equivalents, End of Period $ 251,944 $ 190,753
Cash Interest Paid $ 205,167 $ 82,734
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
6
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GULFWEST OIL COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
(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.
2. The accompanying financial statements include the Company and its
wholly-owned subsidiaries: WestCo Oil Company ("WestCo"), formed in
1995; VanCo Well Service, Inc. ("VanCo") , GulfWest Texas Company
("GWT") and GulfWest Permian Company ("GWP") all formed in 1996. All
material intercompany transactions and balances are eliminated upon
consolidation.
3. 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.
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. The Company's 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.
During the fourth quarter of 1996, the Company acquired significant producing
oil properties with proved reserves from an unrelated entity in two separate
transactions. In the first transaction ("Phase I"), the Company acquired various
properties for $3,000,000. In the second transaction ("Phase II"), the Company
acquired various properties for $7,654,000. The Company's subsidiary, WestCo Oil
Company ("WestCo") is the operator of the acquired properties.
Results of Operations
Comparative results of operations for the periods indicated are discussed below.
Three-Month Period Ended June 30, 1997 compared to Three Month Period Ended June
30, 1996.
Oil and gas sales for the second quarter increased from $272,090 in 1996 to
$1,056,002 in 1997, due to the addition of the Phase I and Phase II properties
during the fourth quarter of 1996. Well servicing revenues for 1997 were
generated by the Company's subsidiary, VanCo Well Service, Inc. ("VanCo") which
commenced operations in September 1996. Revenues from operating overhead and
other income for 1997 increased from $44,096 to $79,099 and included management
fees, rentals and saltwater disposal fees.
Lease operating expenses, depreciation and depletion and general and
administrative expenses increased for the period in 1997 due to the acquisitions
of the additional properties discussed above and the associated expansion of
operations.
Interest expense for the second quarter of 1997 compared to 1996 increased from
$55,855 to $258,618 due to borrowing costs related to the acquisition of
additional oil properties and other debt incurred during the year to finance the
Company' operations. Also included is a non-cash expense of $10,000 for options
issued to a non-related third party who guaranteed a $2,000,000 revolving
line-of-credit.
Six-Month Period Ended June 30, 1997 compared to Six Month Period Ended June 30,
1996.
Oil and gas revenues increased by $1,736,026 in the first six months of 1997
compared to the same period in 1996 due to the acquisition of the additional
properties previously discussed above. The Company contributed its interest in
the gathering system in exchange for working interests in wells in the
Madisonville Field, therefore, there was no gathering system income for the 1997
period.
8
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The Company generated $194,617 in revenues from the management of oil and gas
wells, rentals and saltwater disposal fees compared to management fees only of
$82,441 for the same period in 1996.
Costs and expenses, including interest expense, all increased significantly for
the period in 1997 compared to 1996, due to the additional properties acquired
and financed in the fourth quarter of 1996.
VanCo commenced operations in September 1996, therefore, there were no well
servicing revenues and expenses for the period in 1996.
Financial Condition and Capital Resources
During the fourth quarter of 1996, the Company acquired and assumed operations
for $10,654,000 in oil properties in West Texas. Utilizing independently
prepared petroleum engineering reports and expected average prices for oil and
gas of $18 per barrel and $2 per MCF, respectively, for 1997 (both prices lower
than existed at December 31, 1996), management estimates the Company will have
sufficient cash flows from operations to fund debt service obligations and
preferred stock dividend obligations as they become due.
On January 7, 1997, the Company established a $2,000,000 revolving
line-of-credit with a banking institution, with part of the proceeds to be used
for payment of short-term notes incurred with acquisitions made during the
fourth quarter of 1996. The line-of-credit is guaranteed by an unrelated third
party in exchange for options to purchase 250,000 shares of the Company's Common
Stock at an exercise price of $2.88 per share. The Company used the Black-Sholes
option pricing model to estimate the fair value of the options resulting in a
$40,000 non-cash interest expense amortized over one year, with $10,000 recorded
each quarter.
In a subsequent event, on July 2, 1997, the revolving line-of-credit was
increased to $2,750,000 with the additional funds to be used for acquisitions
and further enchancements of the West Texas properties. The guarantor was issued
additional options to purchase 100,000 shares of the Company's Common Stock at
an exercise price of $2.56 per share.
Management is currently negotiating with a partner to assist in the horizontal
development of wells on its Madisonville properties. Management has identified 7
wells for re-entry using its horizontal technique which has proved up an
additional 400,000 barrels of oil equivalent. The partner would be required to
provide sufficient funds to pay down the existing debt on the property and fund
the drilling and completion of the horizontal wells in exchange for a
substantial operating interest in those wells.
Management will continue an aggressive acquisition strategy with a target of
$20,000,000 in additional properties during 1997, and continues to explore the
possibilities of issuing more preferred or common shares as the market allows to
fund such acquisitions. On April 2, 1997, the Company entered into a Purchase
and Sale Agreement to acquire oil and gas properties ("Phase III") for a
purchase price of $4,700,000, to be funded by bank financing of $3,600,000, with
a balance to be paid in cash and through a production net profits interest under
certain terms and conditions. The Company is presently negotiating with a credit
facility for a long-term loan in order to consolidate the debt incurred by the
Company as part of the Phase I and II purchases and to finance the Phase III
purchase.
9
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On April 23, 1997, the $500,000 principal and $8,329 in unpaid interest (since
February 28, 1997) on the Company's subordinated promissory notes was to be due
and payable. The note holders of $475,000 in principal agreed to extend the due
date of their notes to April 23, 1998, in exchange for warrants to purchase
47,500 shares of the Company's Common Stock at an exercise price of $3.25 per
share and the extension of the expiration date to April 23, 1998 on warrants
they hold to purchase 47,500 shares of Common Stock at an exercise price of
$5.00 per share. The note holders also agreed to exercise warrants they hold to
purchase 47,500 shares of Common Stock at an exercise price of $0.50 per share,
with proceeds to the Company of $23,750.
Although management believes the above actions will provide the Company with the
means to remain cash flow positive, there is no guarantee these actions can be
effectively implemented. Adverse changes in prices of oil and gas and/or the
inability of the Company to continue to raise the money necessary to develop
existing reserves or acquire new reserves would have a severe impact on the
Company.
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: August 14, 1997 By: /s/ Jim C. Bigham
Jim C. Bigham
Executive Vice President
and Secretary
Date: August 14, 1997 By: /s/ John E. Loehr
John E. Loehr
Chief Financial Officer
11
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<ARTICLE> 5
<LEGEND>
THIS SHCEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GULFWEST OIL
COMPANY'S QUARTERLY REPORT FILED ON FORM 10-Q FOR THE QUARTER ENDED JUNE-30-97
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000813779
<NAME> 0
<MULTIPLIER> 1
<CURRENCY> 0
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-1-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 251,944
<SECURITIES> 0
<RECEIVABLES> 671,312
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,090,975
<PP&E> 17,217,286
<DEPRECIATION> (1,801,193)
<TOTAL-ASSETS> 16,529,435
<CURRENT-LIABILITIES> 3,999,495
<BONDS> 0
0
51
<COMMON> 1,753
<OTHER-SE> 3,610,089
<TOTAL-LIABILITY-AND-EQUITY> 16,529,435
<SALES> 2,210,623
<TOTAL-REVENUES> 2,900,057
<CGS> 0
<TOTAL-COSTS> 2,570,227
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (500,008)
<INCOME-PRETAX> (152,786)
<INCOME-TAX> 0
<INCOME-CONTINUING> (152,786)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (152,786)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
