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, 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, May 8, 2000, was 16,645,336 shares of
Class A Common Stock, $.001 par value.
<PAGE>
GULFWEST OIL COMPANY
FORM 10-Q FOR THE QUARTER ENDED
MARCH 31, 2000
Page of
Form 10-Q
Part I: Financial Statements
Item 1. Financial Statements
Consolidated Balance Sheets, March 31, 2000,
and December 31, 1999 3
Consolidated Statements of Operations-for the three
months ended March 31, 2000, and 1999 5
Consolidated Statements of Cash Flows-for the three
months ended March 31, 2000, and 1999 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
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
- ------- ---------------------
GULFWEST OIL COMPANY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------------- ------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 120,984 $ 287,300
Accounts Receivable - trade, net of allowance for doubtful
accounts of -0- in 2000 and 1999 1,368,723 990,402
Prepaid expenses 95,662 79,763
---------------- ------------------
Total current assets 1,585,369 1,357,465
---------------- ------------------
OIL AND GAS PROPERTIES,
using the successful efforts method of accounting 20,862,405 20,083,696
OTHER PROPERTY AND EQUIPMENT 1,458,345 1,358,400
Less accumulated depreciation, depletion,
and amortization (3,053,069) (2,940,191)
---------------- ------------------
Net oil and gas properties and
other property and equipment 19,267,681 18,501,905
---------------- ------------------
DEPOSITS 27,638 27,638
INVESTMENTS 122,785 122,785
DEBT ISSUE COST 232,422
---------------- ------------------
TOTAL ASSETS $ 21,235,895 $ 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
MARCH 31, 2000 AND DECEMBER 31, 1999
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------------ -----------------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable $ 444,882 $ 250,000
Notes payable - related parties 50,000 750,000
Current portion of long-term debt 2,431,567 2,114,251
Current portion of long-term debt - related parties 259,381 234,355
Accounts payable - trade 1,465,760 839,129
Accrued expenses 610,682 462,956
------------------ -----------------
Total current liabilities 5,262,272 4,650,691
------------------ -----------------
LONG-TERM DEBT, net of current portion 10,947,307 11,040,744
------------------ -----------------
LONG-TERM DEBT, RELATED PARTIES 278,259 263,574
------------------ -----------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock 88 88
Common stock 16,230 15,697
Additional paid-in capital 22,089,668 21,321,909
Retained deficit (17,205,455) (17,130,436)
Long-term accounts and notes receivable - related
parties, net of allowance for doubtful accounts of
$700,230 in 2000 and 1999 (152,474) (152,474)
------------------ -----------------
Total stockholders' equity 4,748,057 4,054,784
------------------ -----------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 21,235,895 $ 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 ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
---------------- -----------------
<S> <C> <C>
OPERATING REVENUES
Oil and gas sales $ 1,500,437 $ 210,531
Well servicing revenues 74,010 27,607
Operating overhead and other income 44,009 35,103
---------------- -----------------
1,618,456 273,241
---------------- -----------------
OPERATING EXPENSES
Lease operating expenses 673,877 238,483
Cost of well servicing operations 87,446 45,685
Depreciation, depletion and amortization 182,071 110,706
General and administrative 366,837 464,134
---------------- -----------------
1,310,231 859,008
---------------- -----------------
INCOME (LOSS) FROM OPERATIONS 308,225 (585,767)
OTHER INCOME AND EXPENSE
Interest expense (383,380) (202,541)
Gain on sale of assets 4,827 4,902
---------------- -----------------
LOSS BEFORE INCOME TAXES (70,328) (783,406)
INCOME TAXES - -
---------------- -----------------
NET LOSS (70,328) (783,406)
DIVIDENDS ON PREFERRED STOCK
(PAID 2000 - $4,691; 1999 - $1,013) - (104,202)
---------------- -----------------
NET LOSS AVAILABLE TO COMMON
SHAREHOLDERS (70,328) $ (887,608)
================ =================
LOSS PER COMMON SHARE -
BASIC AND DILUTED $ (.00) $ (.28)
================ =================
</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 THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
2000 1999
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (70,328) $ (783,406)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation, depletion,and amortization 182,071 110,766
Common stock and warrants issued and charged to operations 13,600 75,000
(Gain) on sale of assets (4,827) (4,902)
(Increase) decrease in accounts receivable - trade, net (378,321) (175,011)
(Increase) decrease in inventory - 8,374
(Increase) decrease in prepaid expenses (15,899) 437
Increase (decrease) in accounts payable and accrued expenses 774,357 (29,291)
(Increase) decrease in deposits - (10,338)
---------------- ----------------
Cash provided by (used in) operating activities 500,653 (808,371)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 7,750 21,250
Purchase of property and equipment (830,716) (288,660)
---------------- ----------------
Net cash used in investing activities (822,966) (267,410)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debt (291,581) (61,933)
Proceeds from debt issuance 680,000 900,000
Debt issue cost (232,422) -
Dividends paid - (1,013)
---------------- ----------------
Net cash provided by financing activities 155,997 837,054
---------------- ----------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (166,316) (238,727)
CASH AND CASH EQUIVALENTS, beginning of period 287,300 204,307
---------------- ----------------
CASH AND CASH EQUIVALENTS, end of period $ 120,984 $ (34,420)
================ ================
CASH PAID FOR INTEREST $ 198,912 $ 123,853
================ ================
</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
MARCH 31, 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: 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; 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 three month period ended March 31, 2000, the Company
acquired $120,053 of other property and equipment through notes payable
to financial institutions and related parties. In addition, 50 shares
of preferred stock, along with unpaid dividends of $4,961, were
converted to 32,990 shares of common stock and $750,000 in debt to a
director was converted to 500,000 shares of common stock.
5. In a subsequent event, on April 5, 2000, the Company entered into an
agreement with Aquila Energy Capital, an energy lender ("Aquila")
to provide $19,302,000 in financing, of which $12,900,000 was
funded at closing. The proceeds 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, to acquire additional interests in the
Madisonville Field, Texas, including the release of a 15% net profits
interest by the Partnership, for $368,289. The lender agreed to
provide an additional $6,000,000 in development capital to be used for
development projects on the Company's existing properties, as
identified by the Company and approved by the lender. The remaining
$402,000 will be 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>
The Company is now proceeding with its development plan to be funded by
the new financing. This plan should significantly increase production
and allow the Company to meet its debt obligations and attain
additional growth. 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.
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 March 31, 2000 compared to Three Month Period Ended
March 31, 1999.
Revenues
Oil and Gas Sales. Revenues from the sale of crude oil and natural gas
for the first quarter increased 613% from $210,500 in 1999 to $1,500,400 in
2000. This was due to increased oil and gas production, higher oil and gas
prices and acquisitions of additional properties.
Well Servicing Revenues. Revenues from well servicing operations
increased by 168% from $27,600 in 1999 to $74,000 in 2000. This increase was due
to higher rig utilization on operated properties where the Company has working
interest partners.
Operating Overhead and Other Income. Revenues from the operating of
properties increased 25% from $35,100 in 1999 to $44,000 in 2000. This increase
was due to a slightly larger operation of wells for other working interest
owners.
Costs and Expenses
Lease Operating Expenses. Lease operating expenses increased 183% from
$238,500 in 1999 to $673,900 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
91% from $45,700 in 1999 to $87,400 in 2000. This was due to higher rig
utilization on operated properties where the Company has working interest
partners.
Depreciation, Depletion and Amortization (DD&A). DD&A increased 64%
from $110,700 in 1999 to $182,100 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 21%
for the period from $464,100 in 1999 to $366,900 in 2000. During the period in
1999, the Company had expenses associated with the consolidation of its offices
to Houston and non-cash expenses from the issuance of director options that it
did not have during the period in 2000.
Interest Expense. Interest expense increased 89% from $202,500 in 1999
to $383,400 in 2000, primarily due to interest on debt associated with
additional acquisitions.
Financial Condition and Capital Resources
At March 31, 2000, the Company's current liabilities exceeded its
current assets by $3,676,903 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.
Management has defined a tactical and strategic business plan to (1)
use its existing assets to achieve 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 in
an attempt to move the Company to profitability:
In a subsequent event, on April 5, 2000, the Company entered into an
agreement with Aquila to provide $19,302,000 in financing, of which $12,900,000
was funded at closing. The proceeds 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, to acquire additional
interests in the Madisonville Field, Texas, including the release of a 15% net
profits interest by the Partnership, for $368,289. The lender agreed to provide
an additional $6,000,000 in development capital to be used for development
projects on the Company's existing properties, as identified by the Company and
approved by the lender. The remaining $402,000 will be 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 now proceeding with its development plan to be funded by
the new financing. This plan should significantly increase production and allow
the Company to meet its debt obligations and attain additional growth. 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.
10
<PAGE>
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.
#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 December 31, 1999, filed
with the Commission on January 10, 2000.
11
<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: May 8, 2000 By: /s/ Thomas R. Kaetzer
----------------------
Thomas R. Kaetzer
President
Date: May 8, 2000 By: /s/ Jim C. Bigham
------------------
Jim C. Bigham
Executive Vice President
and Secretary
Date: May 8, 2000 By: /s/ Richard L. Creel
---------------------
Richard L. Creel
Vice President of Finance
12
<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 MARCH
31, 2000 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-31-1999
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 120,984
<SECURITIES> 0
<RECEIVABLES> 1,368,723
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,585,369
<PP&E> 22,320,750
<DEPRECIATION> 3,053,069
<TOTAL-ASSETS> 21,235,895
<CURRENT-LIABILITIES> 5,262,272
<BONDS> 0
0
88
<COMMON> 16,230
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 21,235,895
<SALES> 1,500,437
<TOTAL-REVENUES> 1,618,456
<CGS> 0
<TOTAL-COSTS> 1,310,231
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 383,380
<INCOME-PRETAX> (70,328)
<INCOME-TAX> 0
<INCOME-CONTINUING> (70,328)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (70,328)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
