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, 2000
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.
YES X NO ____
The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date, August 8, 2000, was 17,885,041 shares
of Class A Common Stock, $.001 par value.
<PAGE>
GULFWEST OIL COMPANY
FORM 10-Q FOR THE QUARTER ENDED
JUNE 30, 2000
Page of
Form 10-Q
Part I: Financial Statements
Item 1. Financial Statements
Consolidated Balance Sheets, June 30, 2000
and December 31, 1999 3
Consolidated Statements of Operations-for the three
months and six months ended June 30, 2000, and 1999 5
Consolidated Statements of Cash Flows-for the six
months ended June 30, 2000, and 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 9
Part II: Other Information
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on 8-K 12
Signatures 13
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
------- ---------------------
GULFWEST OIL COMPANY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------------------- ----------------------
---------------------- ----------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 305,508 $ 287,300
Accounts Receivable - trade, net of allowance for doubtful
accounts of -0- in 2000 and 1999 1,745,739 990,402
Prepaid expenses 49,970 79,763
---------------------- ----------------------
Total current assets 2,101,217 1,357,456
OIL AND GAS PROPERTIES,
using the successful efforts method of accounting 24,814,578 20,083,696
OTHER PROPERTY AND EQUIPMENT 1,849,644 1,358,400
Less accumulated depreciation, depletion
and amortization (3,301,955) (2,940,191)
---------------------- ----------------------
Net oil and gas properties, and
other property and equipment 23,362,267 18,501,905
---------------------- ----------------------
DEPOSITS 27,638 27,638
INVESTMENTS 122,785 122,785
DEBT ISSUE COST 476,909
---------------------- ----------------------
TOTAL ASSETS $ 26,090,816 $ 20,009,793
====================== ======================
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
3
<PAGE>
GULFWEST OIL COMPANY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------------------- ---------------------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable $ 225,182 $ 250,000
Notes payable - related parties 200,000 750,000
Current portion of long-term debt 3,879,855 2,114,251
Current portion of long-term debt - related parties 261,454 234,355
Accounts payable - trade 1,664,822 839,129
Accrued expenses 319,450 462,956
--------------------- ---------------------
Total current liabilities 6,550,763 4,650,691
--------------------- ---------------------
LONG-TERM DEBT, net of current portion 13,430,731 11,040,744
--------------------- ---------------------
LONG-TERM DEBT, RELATED PARTIES 252,969 263,574
--------------------- ---------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock 80 88
Common stock 17,885 15,697
Additional paid-in capital 23,178,900 21,321,909
Retained deficit (17,195,570) (17,130,436)
Long-term accounts and notes receivable - related parties,
net of allowance for doubtful accounts of $700,230 in
2000 and 1999 (144,942) (152,474)
--------------------- ---------------------
Total stockholders' equity 5,856,353 4,054,784
--------------------- ---------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 26,090,816 $ 20,009,793
===================== =====================
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
4
<PAGE>
GULFWEST OIL COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED
JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
----------------- ------------- ----------------- -------------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Oil and gas sales $ 1,930,127 $ 363,139 $ 3,430,564 $ 573,670
Well servicing revenues 97,251 15,884 171,261 43,491
Operating overhead and other income 96,699 28,365 140,708 63,468
----------------- ------------- ----------------- -------------
2,124,077 407,388 3,742,533 680,629
----------------- ------------- ----------------- -------------
OPERATING EXPENSES
Lease operating expenses 746,690 244,315 1,420,567 482,798
Cost of well servicing operations 95,884 38,572 183,330 84,257
Depreciation, depletion and amortization 299,368 112,802 481,439 223,508
General and administrative 377,841 579,772 744,678 1,043,936
----------------- ------------- ----------------- -------------
1,519,783 975,461 2,830,014 1,834,499
----------------- ------------- ----------------- -------------
INCOME (LOSS) FROM OPERATIONS 604,294 (568,073) 912,519 (1,153,870)
----------------- ------------- ----------------- -------------
OTHER INCOME AND EXPENSE
Interest Income 15,247 145 15,247 173
Interest expense (538,855) (217,084) (922,235) (419,625)
Gain on sale of assets 1,500 180 6,327 5,082
----------------- ------------- ----------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES 82,186 (784,832) 11,858 (1,568,240)
INCOME TAXES
----------------- ------------- ----------------- -------------
NET INCOME (LOSS) 82,186 (784,832) 11,858 (1,568,240)
DIVIDENDS ON PREFERRED STOCK
(PAID 2000 - $76,992; 1999 - $ 0-) (160,848) (329,542)
----------------- ------------- ----------------- -------------
NET INCOME (LOSS) AVAILABLE TO
COMMON SHAREHOLDERS $ 82,186 $(945,680) $ 11,858 $(1,897,782)
================= ============= ================= =============
LOSS PER COMMON SHARE -
BASIC AND DILUTED $ .00 $ (.29) $ .00 4 (.59)
================= ============= ================= =============
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
5
<PAGE>
GULFWEST OIL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
----------------- -----------------
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 11,858 $ (1,568,240)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation, depletion, and amortization 481,439 223,508
Common stock and warrants issued and charged to operations 13,600 224,650
(Gain) on sale of assets (6,327) (5,082)
Other non-operating (income) (5,780)
(Increase) decrease in accounts receivable - trade, net (925,135) (341,865)
(Increase) decrease in prepaid expenses 29,793 (7,402)
Increase (decrease) in accounts payable and accrued expenses 1,006,862 105,735
(Increase) decrease in deposits (10,338)
----------------- -----------------
Net cash provided by (used in) operating activities 606,310 (1,379,034)
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 9,250 21,430
Purchase of property and equipment (2,026,327) (522,046)
----------------- -----------------
Net cash used in investing activities (2,017,077) (500,616)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in non-operating receivables 50,000
Proceeds from subscription of common stock 557,878 700,000
Payments on debt (603,071) (179,990)
Proceeds from debt issuance 1,739,510 1,451,200
Debt issue cost (315,342)
----------------- -----------------
Net cash provided by financing activities 1,428,975 1,971,210
----------------- -----------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 18,208 91,560
CASH AND CASH EQUIVALENTS, beginning of period 287,300 204,307
----------------- -----------------
CASH AND CASH EQUIVALENTS, end of period $ 305,508 $ 295,867
================= =================
CASH PAID FOR INTEREST $ 538,673 $ 115,778
================= =================
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
6
<PAGE>
GULFWEST OIL COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999 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: RigWest Well Service, Inc. ("RigWest"),
formerly VanCo Well Service, Inc., formed September 5, 1996; GulfWest
Texas Company ("GWT") formed September 23, 1996; DutchWest Oil Company
("DutchWest") formed July 28, 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; GulfWest Oil & Gas
Company ("GulfWest O&G") formed February 8, 1999; and LTW Pipeline Co.
("LTW") formed April 19, 1999. 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.
4. Non-cash Investing and Financing
During the six month period ended June 30, 2000, the Company acquired
$3,287,963 in property and equipment through notes payable to financial
institutions and related parties of $2,811,965, in exchange of accounts
receivable of $169,798 and by issuing 200,000 shares of common stock
valued at $306,200. In addition, accounts payable and accrued expenses
decreased $312,791, debt issue costs increased $192,000 and
non-operating receivables increased $50,000 through notes payable to
financial institutions. During the period, 815 shares of preferred
stock, along with unpaid dividends of $76,992, were converted to
538,322 shares of common stock, notes payable of $900,000 (including
$750,000 to a director) were converted to 700,000 shares of common
stock and accounts payable of $4,352 were converted to 6,000 shares of
common stock. Also, related party receivables of $7,532 were exchanged
for accounts payable.
5. On April 5, 2000, the Company entered into an agreement with an energy
lender (the "April 2000 Financing") to provide $19,302,000 in
financing, of which $12,900,000 was funded at closing. An additional
$6,000,000 in development capital will be funded for development
projects on the Company's existing properties, as identified by the
Company and approved by the lender. The proceeds funded at closing
were used to retire existing debt, including accrued interest, of
$10,234,977; acquire oil and gas properties in Zavala County, Texas
for $2,300,000, including $3,266 in cash paid by the Company and
200,000 shares of the Company's common stock; and, acquire additional
interests in the Madisonville Field, Texas, including the release of a
15% net profits interest by a former lender, for $368,289. The
remaining $402,000 was used for costs associated with closing the
loan. The loan is secured by substantially all of the Company's
interests in oil and gas properties, bears interest at prime plus 3.5%
and matures May 29, 2004. Monthly payments as to principal and
interest are from an 85% net revenue interest in the secured
properties. The lender retains a 7% overriding royalty interest with
payments commencing after the loan is paid in full.
7
<PAGE>
6. As a result of the April 2000 Financing, the Company entered into an
agreement with the energy lender, commencing in May 2000, to hedge a
portion of its oil and gas sales for the period of May 2000 through
April 2004. The agreement calls for initial volumes of 7,900 barrels of
oil and 52,400 Mcf of gas per month, declining monthly thereafter. As a
result of this agreement, the Company realized a loss of $183,659 for
the three-month period ended June 30, 2000, which is included in oil
and gas sales.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
------- ------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
Overview
--------
GulfWest Oil Company ("GulfWest" or the "Company") is primarily engaged
in the acquisition, development, exploitation, exploration and production of
crude oil and natural gas. The Company is focused on increasing production from
its existing oil and gas properties, acquiring additional interests in oil and
gas properties and the further exploitation, exploration and development of its
oil and gas assets. The Company's gross revenues are derived from the following
sources:
1. Oil and gas sales that are proceeds from the sale of crude oil and
natural gas production to midstream purchasers;
2. Operating overhead consisting of fees earned from other working
interest owners for operating oil and gas properties; and,
3. Well servicing revenues that are earnings from the operation of well
servicing equipment under contract to third party operators.
Results of Operations
---------------------
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.
Comparative results of operations for the periods indicated are discussed below.
Three-Month Period Ended June 30, 2000 compared to Three Month Period Ended June
30, 1999.
Revenues
Oil and Gas Sales. Revenues from the sale of crude oil and natural gas
for the first quarter increased 432% from $363,100 in 1999 to $1,930,100 in
2000. This was due to increased oil and gas production from development
projects, higher oil and gas prices, and acquisitions of additional properties.
Well Servicing Revenues. Revenues from well servicing operations
increased by 512% from $15,900 in 1999 to $97,300 in 2000. This increase was due
to higher rig utilization on operated properties where the Company has working
interest partners and increased work for third parties.
Operating Overhead and Other Income. Revenues from the operating of
properties increased 240% from $28,400 in 1999 to $96,700 in 2000. This increase
was due to a larger operation of wells for other working interest owners.
Costs and Expenses
Lease Operating Expenses. Lease operating expenses increased 206% from
$244,300 in 1999 to $746,700 in 2000, due to the acquisitions of additional
properties, expanded oil and gas production, and the costs related to such
production.
9
<PAGE>
Cost of Well Servicing Operations. Well servicing expenses increased
148% from $38,600 in 1999 to $95,900 in 2000. This was due to higher rig
utilization on operated properties where the Company has working interest
partners and increased work for third parties.
Depreciation, Depletion and Amortization (DD&A). DD&A increased 165%
from $112,800 in 1999 to $299,400 in 2000, due to significantly higher
production resulting from successful field development activities and
acquisitions.
General and Administrative (G&A) Expenses. G&A expenses decreased 35% for
the period from $579,800 in 1999 to $377,800 in 2000. The Company had
non-recurring expenses in 1999 consisting of costs associated with the
consolidation of its offices to Houston and non-cash charges of approximately
$114,000 related to the issuance of stock and warrants.
Interest Expense. Interest expense increased 148% from $217,100 in 1999
to $538,900 in 2000, due to interest on debt associated with additional
acquisitions and higher borrowing rates.
Six-Month Period Ended June 30, 2000 compared to Six-Month Period Ended June 30,
1999.
Revenues
Oil and Gas Sales. Revenues from the sale of crude oil and natural gas
for the period increased 498% from $573,700 in 1999 to $3,430,600 in 2000. This
was due to increased oil and gas production from development projects, higher
oil and gas prices, and acquisitions of additional properties.
Well Servicing Revenues. Revenues from well servicing operations
increased by 294% from $43,500 in 1999 to $171,300 in 2000. This increase was
due to higher rig utilization on operated properties where the Company has
working interest partners and increased work for third parties.
Operating Overhead and Other Income. Revenues from the operating of
properties increased 122% from $63,500 in 1999 to $140,700 in 2000. This
increase was due to a larger operation of wells for other working interest
owners.
Costs and Expenses
Lease Operating Expenses. Lease operating expenses increased 194% from
$482,800 in 1999 to $1,420,600 in 2000, due to the acquisitions of additional
properties, expanded oil and gas production, and the costs related to such
production.
Cost of Well Servicing Operations. Well servicing expenses increased
117% from $84,300 in 1999 to $183,300 in 2000. This was due to higher rig
utilization on operated properties where the Company has working interest
partners and increased work for third parties.
Depreciation, Depletion and Amortization (DD&A). DD&A increased 115%
from $223,500 in 1999 to $481,400 in 2000, due to significantly higher
production resulting from successful field development activities and
acquisitions.
General and Administrative (G&A) Expenses. G&A expenses decreased 29% for
the period from $1,044,000 in 1999 to $744,700 in 2000. The Company had
non-recurring expenses in 1999 consisting of costs associated with the
consolidation of its offices to Houston and non-cash charges of approximately
$211,000 related to the issuance of stock and warrants.
10
<PAGE>
Interest Expense. Interest expense increased 120% from $419,600 in 1999
to $922,200 in 2000, due to interest on debt associated with additional
acquisitions and higher borrowing rates.
Financial Condition and Capital Resources
-----------------------------------------
Management has defined a tactical and strategic business plan to (1)
use its existing assets to achieve and sustain positive cash flow, and (2)
identify and evaluate additional development and acquisition opportunities to
further grow the Company. Following are steps management has taken and is
proceeding with as part of its business plan:
The April 2000 Financing provided the Company $19,302,000 in financing,
of which $12,900,000 was funded at closing. An additional $6,000,000 in
development capital will be funded for development projects on the Company's
existing properties, as identified by the Company and approved by the lender.
The proceeds funded at closing were used to retire existing debt, including
accrued interest, of $10,234,977; acquire oil and gas properties in Zavala
County, Texas for $2,300,000, including $3,266 in cash paid by the Company and
200,000 shares of the Company's common stock; and, acquire additional interests
in the Madisonville Field, Texas, including the release of a 15% net profits
interest by a former lender, for $368,289. The remaining $402,000 was used for
costs associated with closing the loan. The loan is secured by substantially all
of the Company's interests in oil and gas properties, bears interest at prime
plus 3.5% and matures May 29, 2004. Monthly payments as to principal and
interest are from an 85% net revenue interest in the secured properties. The
lender retains a 7% overriding royalty interest with payments commencing after
the loan is paid in full.
The Company is proceeding with its development plan to be funded by the
April 2000 Financing. This plan should significantly increase production and
allow the Company to meet its debt obligations and attain additional growth.
However, adverse changes in prices of oil and gas and/or the inability of the
Company to continue to raise the money necessary to further develop existing
reserves or acquire new reserves could have a severe impact on the Company.
In a subsequent event, the Company plans to complete an ongoing private
offering, with the sale of 1,000,000 shares of its common stock for proceeds of
$750,000. The proceeds will be used for the conversion of debt, working capital
and development capital.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
------- ----------------------------------------------------
The annual meeting of shareholders was held on May 25, 2000,
at which the only matter submitted to a vote was the election of
directors. Seven candidates were presented by the Board of Directors:
Anthony P. Towell, J. Virgil Waggoner, John E. Loehr, Marshall A. Smith
III, Thomas R. Kaetzer, Jim C. Bigham and Steven M. Morris. Of the
16,645,336 outstanding shares of common stock, there were 15,240,502
(91.6%) present, in person or by proxy, and entitled to be voted at the
meeting. 15,224,087 votes were cast for each of the nominees for
director (except for Mr. Bigham for whom 400 votes were withheld),
which, in all cases, was more than a majority of the shares represented
at the meeting. All seven candidates were declared duly and validly
elected members of the Board of Directors, each to serve until the next
annual meeting of shareholders or until his respective successor has
been elected and qualified.
ITEM 5. OTHER INFORMATION
------ -----------------
Effective March 31, 2000, the Company entered into a
Registration Rights Agreement with a director and significant
shareholder, pursuant to which the Company granted one-time demand
registration rights for up to 5,000,000 shares previously acquired by
the shareholder in exchange for conversion of $750,000 debt to 500,000
shares of common stock.
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.
#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.
---------------
* 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 Definitive Proxy
Statement dated April 24, 1998, filed with the
Commission on April 24, 1998.
(b) Form 8-K -
Current Report on Form 8-K dated April 5, 2000, filed with the
Commission on April 5, 2000.
12
<PAGE>
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 9, 2000 By: /s/ Thomas R. Kaetzer
-----------------------
Thomas R. Kaetzer
President
Date: August 9, 2000 By: /s/ Jim C. Bigham
-----------------------
Jim C. Bigham
Executive Vice President
and Secretary
Date: August 9, 2000 By: /s/ Richard L. Creel
-----------------------
Richard L. Creel
Vice President of Finance
13
