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, 1999
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.)
397 North Sam Houston Parkway East
Suite 375
Houston, Texas 77060
(Address of principle executive offices) (zip code)
(281) 820-1919
(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 X YES
The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date, September 14, 1999, was 13,691,987
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, 1999
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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, 1999,
and December 31, 1998 3
Consolidated Statements of Operations-for the three
months ended March 31, 1999, and 1998 5
Consolidated Statements of Cash Flows-for the three
months ended March 31, 1999, and 1998 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 11
Item 6. Exhibits and Reports on 8-K 11
Signatures 12
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2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
GULFWEST OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
(UNAUDITED)
ASSETS
<CAPTION>
March 31, December 31,
1999 1998
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CURRENT ASSETS:
Cash and cash equivalents $ (34,420) $ 204,307
Accounts Receivable - trade, net of allowance for doubtful
accounts of -0- in 1999 and 1998 702,802 527,791
Prepaid expenses 74,524 74,961
Inventory 5,551 13,925
Total current assets 748,457 820,984
OIL AND GAS PROPERTIES,
using the successful efforts method of accounting
Undeveloped properties 750,628 750,628
Developed properties 7,565,318 7,283,205
8,315,946 8,033,833
OTHER PROPERTY AND EQUIPMENT 1,320,508 1,406,987
Less accumulated depreciation, depletion,
and amortization (2,452,806) (2,411,755)
Net oil and gas properties and
other property and equipment 7,183,648 7,029,065
DEPOSITS 27,638 17,300
INVESTMENTS 191,478 191,478
TOTAL ASSETS $8,151,221 $8,058,827
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The Notes to Consolidated Financial Statements are an integral part of
these statements.
3
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GULFWEST OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
(UNAUDITED)
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
1999 1998
<S> <C> <C>
CURRENT LIABILITIES
Notes payable $ 487,000 $ 487,000
Notes payable - related parties 1,300,000 950,000
Current portion of long-term debt 3,038,968 2,972,731
Current portion of long-term debt - related parties 307,116 300,914
Accounts payable - trade 1,272,429 1,406,131
Accrued expenses 547,028 442,617
Total current liabilities 6,952,541 6,559,393
LONG-TERM DEBT, net of current portion 3,542,958 3,120,245
LONG-TERM DEBT, RELATED PARTIES 266,066 281,126
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock 130 130
Common stock 3,231 3,113
Additional paid-in capital 12,839,830 12,763,936
Retained deficit (15,301,061) (14,516,642)
Long-term accounts and notes receivable -
related parties, net of allowance for doubtful
accounts of $700,300 in 1999
and 1998 (152,474) ( 152,474)
Total stockholders' equity (deficit) (2,610,344) (1,901,937)
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 8,151,221 $ 8,058,827
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of
these statements.
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GULFWEST OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<CAPTION>
1999 1998
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OPERATING REVENUES
Oil and gas sales $ 210,531 $ 678,259
Marketing and transportation 8,102
Well servicing revenues 27,607 127,522
Operating overhead and other income 27,001 34,969
273,241 840,750
Lease operating expenses 238,483 466,552
Cost of well servicing operations 45,685 115,960
Depreciation, depletion and amortization 110,706 300,932
General and administrative 464,134 343,072
859,008 1,226,516
LOSS FROM OPERATIONS (585,767) (385,766)
OTHER INCOME AND EXPENSE
Interest income 28
Interest expense (202,541) (311,493)
Gain on sale of assets 4,902
LOSS BEFORE INCOME TAXES (783,406) (697,231)
INCOME TAXES
NET LOSS (783,406) (697,231)
DIVIDENDS ON PREFERRED STOCK
(PAID 1999 - $1,013; 1998 - 62,211) (104,202) 62,211)
NET LOSS AVAILABLE TO COMMON
SHAREHOLDERS $ (887,608) $ (759,442)
LOSS PER COMMON SHARE -
SHAREHOLDERS $ (.28) $ (.43)
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of
these statements.
5
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GULFWEST OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<CAPTION>
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (783,406) $ (697,231)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation, depletion, and amortization 110,766 300,932
Common stock and warrants issued and charged to operations 75,000 7,856
(Gain) on sale of assets (4,902)
(Increase) decrease in accounts receivable - trade, net (175,011) 172,411
(Increase) decrease in inventory 8,374
(Increase) decrease in prepaid expenses 437 (98,912)
Increase (decrease) in accounts payable
and accrued expenses (29,291) 232,237
(Increase) decrease in deposits (10,338)
Net cash provided by (used in) operating activities (808,371) (82,707)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 21,250
Purchase of property and equipment (288,660) (3,628,831)
Net cash used in investing activities (267,410) (3,628,831)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debt (61,933) (7,492,728)
Proceeds from debt issuance 900,000 10,632,001
Dividends paid (1,013) (45,952)
Net cash provided by financing activities 837,054 3,093,321
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (238,727) (618,217)
CASH AND CASH EQUIVALENTS, beginning of period 204,307 626,519
CASH AND CASH EQUIVALENTS, end of period $ (34,420) $ 8,302
CASH PAID FOR INTEREST $ 123,853 $ 298,312
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of
these statements.
6
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GULFWEST OIL COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(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: VanCo Well Service, Inc. ("Vanco"), GulfWest Texas
Company ("GWT") both formed in 1996; DutchWest Oil Company ("DutchWest") formed
in 1997; Southeast Texas Oil and Gas Company, L.L.C. ("Setex LLC") acquired
September 1, 1998; SETEX Oil and Gas Company ("SETEX") formed August 11, 1998;
and LTW Pipeline Co. ("LTW") organized April 19, 1999. All material intercompany
transactions and balances are eliminated upon consolidation. The financial
statements also include the results of operations for the first nine months of
1998 for the Company's former wholly-owned subsidiaries: WestCo Oil Company
("WestCo"), formed in 1995 and sold October 1, 1998; and GulfWest Permian
("GulfWest Permian") formed in 1996 and sold October 1, 1998.
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.
4. Non-cash Investing and Financing
During the three month period ended March 31, 1999, the Company exchanged
other equipment for the assumption of debt of $7,975.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
GulfWest is primarily engaged in the acquisition, development,
exploitation, exploration and production of oil and natural gas. The Company is
focused on the acquisition of interests in wells and leases that are currently
producing crude oil and natural gas and that have the potential for increased
production revenue and reserve value through further exploitation, exploration
and development. The Company's gross revenues are derived from the following
sources:
1. Oil and gas sales that are proceeds from the sale of oil and natural gas
production to midstream purchasers;
2 Gathering system revenue consisting of fees earned through the ownership
and operation of pipeline systems which gather and transport natural gas from
properties operated by other producers;
3. Lease sales that are income from the sale of oil and gas leases acquired
by the Company for resale to third parties.
4. Operating overhead consisting of fees earned from other Working Interest
owners for operating oil and natural gas properties; and,
5. Well servicing revenues that are earnings from the operation of well
servicing equipment under contract to third party operators.
Results of Operations
Effective October 1, 1998, the Company sold its stock ownership in a wholly
owned subsidiary, GulfWest Permian. GulfWest Permian's assets included Working
Interests in certain oil properties located on approximately 5,000 acres in five
(5) fields in Pecos, Howard, Sterling and Lynn Counties, Texas with estimated
Proved Reserves of approximately 1.26 million barrels of oil. The properties
were burdened by short-term debt of approximately $9 million. The sale of
GulfWest Permian relieved the Company of negative cash flow of approximately
$75,000 per month, after payment of lease operating expenses, capital expenses
and interest on the debt.
The factors which most significantly affect the Company's results of
operations are (1) the sales price of crude oil and natural gas, (2) the level
of total sales volumes of crude oil and natural gas, (3) the level of and
interest rates on borrowings and, (4) the level and success of new acquisitions
and development of existing properties.
8
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Comparative results of operations for the periods indicated are discussed below.
Three-Month Period Ended March 31, 1999 compared to Three Month Period
Ended March 31, 1998.
Revenues
Oil and Gas Sales. Revenues from oil and gas sales for the first quarter
decreased 69% from $678,300 in 1998 to $210,500 in 1999. This decrease was
primarily attributable to significantly less sales volumes as a result of the
sale of GulfWest Permian and its oil assets, effective October 1, 1998, a
decline in commodity prices, and management's decision to curtail production of
certain wells due to the low prices. The average prices received for production
decreased for oil from $12.52 per Bbl during the first three months of 1998 to
$10.87 per Bbl during the period in 1999 and natural gas prices decreased from
an average of $2.22 per Mcf for the first three months of 1998 to $1.65 per Mcf
for the period in 1999.
Well Servicing Revenues. Operations for third parties produced well
servicing revenues of $27,600 less expenses of $45,700 in 1999, a decrease of
78%, compared to $127,500 less expenses of $116,000 for 1998. This decrease was
due to lower rig utilization under contract to third parties as a result of the
decline in commodity prices.
Operating Overhead and Other Income. Revenues from the operating of
properties decreased 23% from $35,000 in 1998 to $27,000 in 1999, due to the
sale of GulfWest Permian and the discontinuation of operations in certain
fields.
Costs and Expenses
Lease Operating Expenses. Expenses for the operating of leases decreased
49% from $466,600 in 1998 to $238,500 in 1999, primarily due to the sale of
GulfWest Permian and management's decision to shut- in a number of wells due to
low oil prices.
Cost of Well Servicing Operations. Well servicing expenses decreased 61%
from $116,000 in 1998 to $45,700 in 1999, due to the reduced utilization of the
Company's equipment under contract to third parties, as a result of low
commodity prices.
Depreciation, Depletion and Amortization (DD&A). DD&A decreased 63% from
$300,900 in 1998 to $110,700 in 1999, due to lower production after the sale of
GulfWest Permian.
General and Administrative (G&A) Expenses. G&A expenses increased 35% for
the period from $343,100 in 1998 to $464,100 in 1999, due to a non-cash related
issue of stock to a new officer/director and the consolidation of the Companies
offices from Dallas, Texas and Baton Rouge, Louisiana to Houston, Texas.
Interest Expense. Interest expense decreased 35% from $311,500 in 1998 to
$202,500 in 1999. This decrease was due to the sale of GulfWest Permian and the
elimination of its related debt.
Financial Condition and Capital Resources
At March 31, 1999, the Company's current liabilities exceeded its current
assets by $6,203,100 and the Company was either past due or in default of
certain of its debt agreements. Further, the Company has experienced significant
recurring net losses. Following are steps management has taken and are
proceeding with to move the Company to profitability and cure any remaining
defaults on debt agreements:
9
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- First, the Company sold its subsidiary, GulfWest Permian; this sale
eliminated a very significant portion of its debt which was tied to older,
higher cost oil production. The Company is now proceeding to restructure its
long term debt.
- Second, at the same time GulfWest Permian was sold, management decided to
sell the old operating company, WestCo, bring in a new operating team, SETEX,
with consolidated offices in Houston, and focus more on natural gas reserves and
production.
- Third, since December 31, 1998, the Company has raised working capital to
meet its immediate obligations and began to enhance production. A director of
the Company purchased $635,000 of Series BB Preferred Stock and subscribed to
purchase $3,000,000 of Common Stock, $1,500,000 of which the Company has
received at August 12, 1999. The funds from these equity offerings are being
used specifically to reduce current liabilities and increase production through
workovers and installation of production equipment.
- Fourth, with the operating capital commitment and a consolidated office
in Houston, the Company focused on evaluating and acquiring natural gas assets
to achieve a more balanced cash flow from oil and natural gas.
- Fifth, the near-term operating focus of SETEX was to turn each remaining
oil and gas asset of the Company into a positive cash flow property, even at
lower oil and gas prices. This was to be done by significantly lowering expenses
and increasing production.
- Sixth, the Company brought in key technical staff to focus on the
evaluation of existing properties and pipelines, and to continue with efforts to
increase production and revenue from the Company's existing core assets.
- Seventh, the Company defined a tactical and strategic business plan to
use existing assets to achieve a positive corporate cash flow and to identify
and evaluate additional development and acquisition opportunities to further
grow the Company. Specifically, the Company's staff has identified and continues
to evaluate workover and drilling projects on its existing oil and gas
properties. If successful, these "in-hand" opportunities are projected to
provide the Company with sufficient revenue to become profitable. In addition,
the Company has identified, and is evaluating and negotiating the acquisition of
additional oil and gas properties in its core areas.
Although management believes the above actions will ultimately provide the
Company with the means to become 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.
In subsequent events, Mr. J. Virgil Waggoner, a director and significant
shareholder, converted $635,000 in outstanding principal and interest of loans
made to the Company in 1999 to Series BB Preferred Stock on May 28, 1999. On
July 15, 1999, Mr. Waggoner purchased 4,000,0000 shares of the Company's Common
Stock in a private offering at $.75 per share for a total purchase price of
$3,000,000 and on August 16, 1999 converted $2,550,000 of Series BB Convertible
Preferred Stock to Common Stock at $.60 per share.
10
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders of the Company during
the first quarter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits -
Number Description
*3.1 Articles of Incorporation of the Registrant and Amendments thereto.
*3.2 Bylaws of the Registrant.
@3.3 Statement of Resolution Establishing and Designating the Company's
Class AA Preferred Stock, filed with the Secretary of State of Texas as an
amendment to the Company's Articles of Incorporation on September 23, 1996.
@3.4 Statement of Resolution Establishing and Designating the Company's
Class AAA Preferred Stock, filed with the Secretary of State of Texas as an
amendment to the Company's Articles of Incorporation on September 23, 1996.
#3.5 Statement of Resolution Establishing and Designating the Company's
Class C Preferred Stock, filed with the Secretary of State of Texas as an
amendment to the Company's Articles of Incorporation on September 15, 1998.
&10.1 GulfWest Oil Company 1994 Stock Option and Compensation Plan, amended
and restated as of April 15, 1998 and approved by the shareholders on May 28,
1998.
+21.1 Form of Letter of Agreement with Class AAA Preferred Stockholder,
dated July 7, 1999.
_______________
@ Previously filed with the Company's Form 8-K, Current Report dated
October 10, 1996, filed with the Commission on October 25, 1996.
* Previously filed with the Company's Registration Statement (on Form S-1,
Reg. No.33-53526), filed with the Commission on October 21, 1992.
# Previously filed with the Company's Form 8-K, Current Report dated
September 15, 1998, filed with the Commission on September 24,
1998.
& Previously filed with the Company's Definitive Proxy Statement
dated April 24, 1998, filed with the Commission on April 24, 1998.
+ Previously filed with the Company's Annual Report on Form 10-K, for
the year ended December 31, 1998, filed with the Commission on August
27, 1999.
11
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(b) Form 8-K -
None
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: September 15, 1999 By: /s/ Thomas R. Kaetzer
Thomas R. Kaetzer
President
Date: September 15, 1999 By: /s/ Jim C. Bigham
Jim C. Bigham
Executive Vice President and
Secretary
Date: September 15, 1999 By: /s/ Richard L. Creel
Richard L. Creel
Vice President of Finance
12
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE GULFWEST
OIL COMPANY QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999
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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> (34,420)
<SECURITIES> 0
<RECEIVABLES> 702,802
<ALLOWANCES> 0
<INVENTORY> 5,551
<CURRENT-ASSETS> 748,457
<PP&E> 9,636,454
<DEPRECIATION> (2,452,806)
<TOTAL-ASSETS> 8,151,221
<CURRENT-LIABILITIES> 6,952,541
<BONDS> 0
0
130
<COMMON> 3,231
<OTHER-SE> (2,613,705)
<TOTAL-LIABILITY-AND-EQUITY> 8,151,221
<SALES> 246,240
<TOTAL-REVENUES> 273,241
<CGS> 284,168
<TOTAL-COSTS> 859,008
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 202,541
<INCOME-PRETAX> (783,406)
<INCOME-TAX> 0
<INCOME-CONTINUING> (783,406)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (783,406)
<EPS-BASIC> (.28)
<EPS-DILUTED> (.28)
</TABLE>
