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, 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, May 14, 1997, was 1,743,654
shares of Class A Common Stock, $.001 par value.
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GULFWEST OIL COMPANY
FORM 10-Q FOR THE QUARTER ENDED
MARCH 31, 1997
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Page of
Form 10-Q
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Part I: Financial Statements
Item 1. Financial Statements
Consolidated Balance Sheets, March 31, 1997,
and December 31, 1996 3
Consolidated Statements of Operations-for the three
months ended March 31, 1997, and 1996 5
Consolidated Statements of Cash Flows-for the three
months ended March 31, 1997, and 1996 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 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on 8-K 10
Signatures 11
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PART I. FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS.
GULFWEST OIL COMPANY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
(UNAUDITED)
ASSETS
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March 31, December 31,
1997 1996
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Current Assets:
Cash and Cash Equivalents $ 66,912 $ 84,477
Accounts Receivable - Trade, Net of Allowance for Doubtful
Accounts of -0- in 1997 and 1996 1,433,324 612,439
Prepaid Expenses 8,678 2,343
Notes Receivable 100,000 -
Total Current Assets 1,608,914 699,259
Oil & Gas Properties, Using the Successful Efforts Method of Accounting:
Undeveloped Properties 80,489 37,910
Developed Properties 15,319,120 14,823,561
Other Property and Equipment 838,119 735,507
Less - Accumulated Depreciation, Depletion,
and Amortization (1,482,240) (1,249,472)
Net Oil and Gas Properties and
Other Property and Equipment 14,755,488 14,347,506
Long-Term Accounts and Notes Receivable -
Related Parties, Net of Allowance for Doubtful Accounts
of $446,948 in 1997 and 1996 97,695 112,659
Total Assets $ 16,462,097 $ 15,159,424
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The accompanying notes are an integral part of these consolidated
financial statements.
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GULFWEST OIL COMPANY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
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March 31, December 31,
1997 1996
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Current Liabilities:
Current Portion of Long-Term Debt $ 2,967,373 $ 1,702,208
Accounts Payable - Trade 1,489,858 1,018,419
Accrued Expenses 102,256 156,663
Total Current Liabilities 4,559,487 2,877,290
Long-Term Debt, Net of Current Portion 7,763,783 8,352,941
Long-Term Debt, Related Parties 325,000 525,000
Total Long-Term Debt 8,088,783 8,877,941
Commitments and Contingencies - -
Stockholders' Equity:
Preferred Stock, Par Value at $.01, 10,000,000 Shares
Authorized, 4,621 and 4,621 Shares Issued and Outstanding
in 1997 and 1996, Respectively 46 46
Common Stock, Par Value at $.001, 20,000,000 Shares
Authorized, 1,696,154 and 1,611,154 Shares Issued and Outstanding
in 1997 and 1996, Respectively 1,696 1,611
Additional Paid-in Capital 7,304,364 6,909,092
Retained Deficit (3,492,279) (3,506,556)
Total Stockholders' Equity 3,813,827 3,404,193
Total Liabilities and Stockholders'
Equity $ 16,462,097 $ 15,159,424
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The accompanying notes are an integral part of these consolidated
financial statements.
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GULFWEST OIL COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
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1997 1996
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Revenues:
Oil and Gas Sales $ 1,154,621 $ 202,507
Well Servicing Revenues 224,990 -
Operating Overhead and Other Income 115,518 38,345
Total Revenues 1,495,129 240,852
Costs and Expenses:
Lease Operating Expenses 435,558 94,382
Cost of Well Servicing Operations 162,923 -
Depreciation and Depletion 232,768 90,214
Lease Abandonment - 8,178
General and Administrative 345,242 221,724
Total Costs and Expenses 1,176,491 414,498
Income (Loss) From Operations 318,638 (173,646)
Other Income and Expense:
Interest Income 8,774 7,017
Interest Expense (241,390) (59,708)
Total Other Income and Expense (232,616) (52,691)
Net Income (Loss) Before Taxes 86,022 (226,337)
Income Tax Provision - -
Net Income (Loss) $ 86,022 $(226,337)
Earnings (Loss) Per Share and Common Stock Equivalents $ .05 $ (.21)
Weighted Average Number of Shares 1,655,097 1,087,074
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The accompanying notes are an integral part of these consolidated
financial statements.
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GULFWEST OIL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
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1997 1996
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Cash Flows Provided (Used) By Operating Activities:
Net Income (Loss) $ 86,022 $ (225,134)
Adjustments to Reconcile Net Income (Loss) to Net
Cash Provided (Used) by Operating Activities:
Depreciation, Depletion, and Amortization 232,768 90,213
Decrease in Accounts Receivable - Related Party, Net - 3,069
(Increase) in Accounts Receivable - Other, Net (820,885) (55,370)
(Increase) in Prepaid Expenses (6,335) (1,187)
Increase (Decrease) in Accounts Payable 471,439 (24,823)
(Decrease) in Accrued Expenses (54,407) (8,081)
Net Cash Provided (Used) By Operating Activities (91,398) (221,313)
Cash Flows Provided (Used) By Investing Activities:
Purchase of Oil and Gas Properties (538,138) (2,011)
Purchase of Equipment (102,612) -
Net Cash Provided (Used) By Investing Activities (640,750) (2,011)
Cash Provided (Used) By Financing Activities:
Decrease in Accounts and Notes Receivable - Related Party 14,964 -
(Increase) in Notes Receivable (100,000) -
(Payment) on Debt (707,650) (90,392)
Amortization of Prepaid Interest - 8,333
(Payments) on Notes Payable - Related Parties (200,000) -
Proceeds From Notes Payable - Other 1,383,657 100,000
Proceeds From Sale of Common and Preferred Stock 395,357 515,000
(Payment) of Dividends (71,745) -
Net Cash Provided (Used) By Financing Activities 714,583 532,941
Increase (Decrease) in Cash and Cash Equivalents (17,565) 309,617
Cash and Cash Equivalents, Beginning of Period 84,477 10,548
Cash and Cash Equivalents, End of Period $ 66,912 $ 320,165
Cash Interest Paid $ 216,668 $ 34,792
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The accompanying notes are an integral part of these consolidated
financial statements.
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GULFWEST OIL COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 Producing 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.
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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.
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.
The Company's subsidiary, WestCo, assumed operation of the 31 wells,
effective August 1, 1995.
During the fourth quarter of 1996, the Company acquired significant oil and
gas reserves from an unrelated entity in two separate transactions. In the
first transaction ("Phase I"), the Company acquired various properties for
$3,000,000. $1,500,000 was paid at closing and a $1,500,000 note payable
was issued. In the second transaction ("Phase II"), the Company acquired
various properties for $7,654,000. $150,000 was paid at closing and two
notes payable totaling $7,504,000 were issued.
Results of Operations
Comparative results of operations for the periods indicated are discussed
below.
Three-Month Period Ended March 31, 1997 compared to Three Month Period
Ended March 31, 1996.
Oil and gas sales for the first quarter increased from $202,500 in 1996 to
$1,154,600 in 1997, due to the addition of working interest ownership in
the Phase I and Phase II acquisitions during the fourth quarter of 1996.
Well servicing revenues for 1997 were generated by VanCo which did not
commence operations until September 1996. Revenues from operating overhead
and other income for 1997 increased to $115,500 and included management
fees of $51,000, gain on the sale of a lease of $37,500, truck rentals of
$15,000 and saltwater disposal fees of $12,000.
Lease operating expenses, depreciation and depletion increased for the
period in 1997 due to the acquisition of the additional working interests
discussed above.
Interest expense for the first quarter of 1997 compared to 1996 increased
from $59,700 to $241,390 due to borrowing cost related to the acquisition
of additional working interests in oil properties and other debt incurred
during the year to finance the Company's 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.
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Financial Condition and Capital Resources
The Company realized a net profit of $86,000 or $.05 per share for the
first quarter of 1997.
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.
Management is seeking 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. In a subsequent event, 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.
In a subsequent event, on April 23, 1997, the $500,000 principal and $8,329
in unpaid interest (since February 28, 1997) on its 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 profitable, 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.
9
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PART II. OTHER INFORMATION
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 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits -
None
(b) Form 8-K -
The Company filed a report on Form 8-K dated January 10, 1997
reporting the establishment of a $2,000,000.00 revolving line of
credit with a financial institution.
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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 15, 1997 By: /s/ Jim C. Bigham
Jim C. Bigham
Executive Vice President and
Secretary
Date: May 15, 1997 By: /s/ John E. Loehr
John E. Loehr
Chairman of the Board and
Chief Financial Officer
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