<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[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
Commission File Number 0-17244
LONE STAR INTERNATIONAL ENERGY, INC.
(Name of small business issuer in its charter)
NEVADA 87-0434288
(State of incorporation) (IRS Employer Identification Number)
200 PALO PINTO, SUITE 108
WEATHERFORD, TEXAS 76086
(Address of principal executive offices) (Zip code)
(817) 598-0542
Issuer's telephone number
Check whether the issuer (1) filed all the reports required to be filed by
section 13 or 15(d) of the Exchange Act 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
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Common Stock, Par Value $.001; 18,815,283 Shares as of July 14, 1997
Transitional Small Business Disclosure Format: Yes [ ] No [x]
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
LONE STAR INTERNATIONAL ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------------- --------------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ $ 1,397
Accounts receivable - oil and gas revenues 51,568 21,263
Accounts receivable - JIB, net of allowance of $20,500 39,712 22,319
Accounts receivable - related party 435,448 347,589
Prepaid expenses 7,720,506
------------------- --------------------
Total current assets 8,247,234 392,568
------------------- --------------------
Properties and equipment, at cost 4,833,110 1,638,403
Less - accumulated depreciation, depletion and amortization 139,453 92,650
------------------- --------------------
Property and equipment, net 4,693,657 1,545,753
------------------- --------------------
Other assets 83,851 525
------------------- --------------------
TOTAL ASSETS $ 13,024,742 $ 1,938,846
=================== =====================
</TABLE>
<PAGE> 3
LONE STAR INTERNATIONAL ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------------- --------------------
(UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Cash overdraft $ 2,497 $
Accounts payable 144,879 121,063
Production payable 352,309 232,272
Accrued interest payable 58,256 47,643
Accrued payroll taxes payable 38,890 672
Notes payable 509,817 467,963
Accounts Payable - interest owners 83,495 74,347
Wages payable 172,417
Current portion of long term debt 1,700
------------------- --------------------
Total current liabilities 1,364,260 943,960
------------------- --------------------
Long term debt 19,183
------------------- --------------------
Total liabilities 1,383,443 943,960
------------------- --------------------
STOCKHOLDERS' EQUITY
Common stock - par value $.001, 100,000,000 shares
authorized, 18,215,283 shares issued and outstanding 18,215 8,397
Common shares to be issued 21,500 21,500
Stock subscriptions receivable (5,000) (5,000)
Additional paid in capital 14,070,627 1,797,445
Retained deficit (2,464,043) (827,456)
------------------- --------------------
Total stockholders' equity 11,641,299 994,886
------------------- --------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 13,024,742 $ 1,938,846
=================== =====================
</TABLE>
<PAGE> 4
LONE STAR INTERNATIONAL ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
Oil and gas production $ 96,865 $ 59,839 $ 152,012 $ 122,959
Operating income 16,800 1,950 23,800 3,900
Other income 5 16 16 53
------------ ------------ ------------ ------------
Total revenues 113,670 61,805 175,828 126,912
------------ ------------ ------------ ------------
EXPENSES
Production expenses 136,871 47,023 159,248 113,423
Depreciation, depletion and amortization 32,656 25,631 46,803 52,045
General and administrative expenses 1,093,026 31,745 1,606,364 80,243
------------ ------------ ------------ ------------
Total expenses 1,262,553 104,399 1,812,415 245,711
------------ ------------ ------------ ------------
Net income (loss) $ (1,148,883) $ (42,594) $ (1,636,587) $ (118,799)
============ ============ ============ ============
Net income (loss) per common share $ (0.086) $ (0.005) $ (0.123) $ (0.014)
============ ============ ============ ============
Weighted average shares outstanding 13,336,959 8,706,000 13,336,959 8,706,000
============ ============ ============ ============
</TABLE>
<PAGE> 5
LONE STAR INTERNATIONAL ENERGY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
--------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (1,636,587) $ (240,836)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation, depletion and amortization 1,076,297 66,026
Changes in operating assets and liabilities:
(Increase) decrease -
Accounts receivable (47,698) 20,493
Increase (decrease) in -
Accounts payable and accrued expenses 254,212 62,601
Revenues payable 120,037 106,241
--------------- ----------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (233,739) 14,525
--------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in other assets (326) (300)
(Increase) decrease in due from related parties (87,859) (83,566)
Purchase of property and equipment (148,511) (6,699)
--------------- ----------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (236,696) (90,565)
--------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (payments) on notes and loans payable, net 19,038
Proceeds from borrowings from interest owners 34,597
Increase (decrease) in cash overdraft (2,497) (2,660)
Sale of common stock 450,000 45,500
--------------- ----------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 466,541 77,437
--------------- ----------------
NET INCREASE (DECREASE) IN CASH (3,894) 1,397
CASH, Beginning of period 1,397
--------------- ----------------
CASH, End of period $ (2,497) $ 1,397
=============== ================
</TABLE>
<PAGE> 6
LONE STAR INTERNATIONAL ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization - Lone Star International Energy, Inc., a Nevada Corporation (the
"Company"), was incorporated in the state of Utah on April 11, 1986 as
Quiescent Corporation. The Company has reincorporated in the state of Nevada.
To reincorporate as a Nevada corporation, on December 1, 1993, the Company's
shareholders approved a merger with a newly formed Nevada corporation with the
same name. A Certificate of Merger of the Utah and Nevada corporations was
executed on December 30, 1993 and following that action the Utah Corporation
filed Articles of Dissolution in Utah on December 30, 1993. In October 1995 the
Company discovered that Articles of Merger had not been recorded in Nevada. The
status of the company resulting from the filing of the Articles of Dissolution
in 1993 and the filing of the Articles of Merger in 1995 is not clear. The
Company believes the merger is effective for all purposes and has and continues
to act accordingly. The Company had no operations until the completion of the
reverse acquisition described below on May 2, 1995.
Reverse Acquisition - The Company entered into an Agreement dated as of April
10, 1995, with Cumberland Petroleum, Inc., a Texas corporation ("Cumberland"),
pursuant to which, on May 2, 1995 the Company acquired from C.E. Justice, 100%
of the capital stock of Cumberland in the exchange for the issuance of
5,000,000 shares of the Company's common stock. The Company changed its name
to Cumberland Holdings, Inc. on May 3, 1995, and to Cumberland Companies, Inc.
On August 17, 1995, and to Lone Star International Energy, Inc. on January 30,
1997.
For accounting purposes, the transaction has been treated as a recapitalization
of the Cumberland with Cumberland as the acquirer (reverse acquisition). The
historical financial statements prior to May 2, 1995 are those of Cumberland.
The historical stockholders' equity accounts of Cumberland at December 31, 1994
have been retroactively restated to reflect the equivalent number of shares of
common stock received in this transaction after giving effect to the difference
in par value.
2. COMMENTS
The accompanying consolidated financial statements are unaudited but, in the
opinion of the management of the company, contain all adjustments, consisting
of only normal recurring accruals, necessary to present fairly the financial
position at June 30, 1997, the results of operations and changes in cash flows
for the six months then ended. Certain information and footnote disclosures
normally included in financial statements that have been prepared in accordance
with generally accepted accounting principals have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange
Commission, although management of the Company believes that the disclosures
contained in these financial statements are adequate to make the information
presented therein not misleading. For further information, refer to the
Company's annual report on Form 10-KSB for the year ended December 31, 1996.
The results of operations for the six months ended June 30, 1997 are not
necessarily indicative of the results of operations to be expected for the full
year ended December 31, 1997.
3. SALE OF COMMON STOCK
During the six months ended June 30, 1997, the Company sold 1,800,000 shares of
common stock, in reliance on exemptions from registration, at a price of $.25
per share for total cash considerations of $450,000. This stock is subject to
the provisions of Rule 144, which requires a one-year restriction. Also, the
Company entered into consulting agreements with ten separate individuals, where
the Company issued each of these individuals 700,000 shares of common stock,
for which a registration statement on
<PAGE> 7
S-8 is effective, The contracts were actually prepared in December of 1996
when the average stock price was $0.25 per share for a value of $1,750,000, but
due to the status of the Company the stock was not issued until March of 1997
at which time the stock had an average price of $2.50 per share for a value of
$17,500,000. During the second quarter of 1997, the Company terminated seven of
the contracts and retired 3,500,000 shares of the common stock, at no cost to
the company, that the Company had issued in regard to the above mentioned
consulting agreements. During April, 1997 the Company acquired Energy Reclaim
Refrigeration, Inc. and the Northridge oil and gas properties with 3,333,333
shares and 1,100,000 shares respectively of the Company's restricted common
stock.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
CERTAIN STATEMENTS CONTAINED IN THIS DOCUMENT, INCLUDING WITHOUT LIMITATION
STATEMENTS CONTAINING THE WORDS "BELIEVES", "ANTICIPATES", "INTENDS",
"EXPECTS", AND WORDS OF SIMILAR IMPORT, CONSTITUTE "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT. SUCH
FORWARD LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND
OTHER FACTORS THAT MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF
THE COMPANY TO MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR
ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD LOOKING STATEMENTS.
OVERVIEW:
Effective May 2, 1995, the Company acquired Cumberland. Cumberland operates oil
and gas properties, for accounting purposes; the transaction has been treated
as a recapitalization of Cumberland with Cumberland as the acquirer (reverse
acquisition). The historical financial statements prior to May 2, 1995 are
those of Cumberland.
The Company intends to increase production and reserves through development of
existing oil and gas properties and future acquisitions. The Company believes
its current revenue is adequate to meet existing needs. Future acquisitions
will require additional capital and the Company believes it can raise such
capital through either public or private financing, or a combination of both.
The Company does not intend to seek bank financing to expand its operations.
In April 1997, the Company acquired Energy Reclaim Refrigeration, Inc. (Energy)
and over sixty oil and gas wells. The Company intends to place Energy into full
production during the current year. This will require additional capital, which
the Company plans to raise through equity financing. There are no assurances
that the Company can raise the financing. Energy has built a prototype to prove
the technology for its by-pass chiller and is in negotiations with a major
utility company to jointly build and test a production prototype. This is a
commercial refrigeration unit that will increase the efficiency of a chiller by
twenty-five (25%) to thirty (30%) percent. There is currently a patent pending
on this process and application. Energy has had a production model of its
fresh-catch unit on a shrimp boat for over a year and a half. The fresh-catch
unit captures waste heat to create refrigeration. It has the ability to both
freeze and refrigerate at the same time. The Company currently has several
marketing agreements in place for both the fresh-catch unit and the by-pass
chiller. The Company holds a process and application patent on both the
fresh-catch unit and the magnetron unit. The magnetron unit is for residential
use.
The Company periodically evaluates other businesses within what it broadly
describes as the energy industry. The Company does not expect that any
associated costs to evaluate such business projects will impair its liquidity.
<PAGE> 8
RESULTS OF OPERATIONS:
Three months ended June 30, 1997 and 1996 -
Revenues increased from $61,805 for the three months ended June 30, 1996 to
$113,670 for the three months ended June 30, 1997. Production expenses
increased from $47,023 for the three months ended June 30, 1996 to $136,871 for
the three months ended June 30, 1997 primarily as a result of the work over of
several wells.
General and administrative expenses increased from $31,745 for the three months
ended June 30, 1996 to $1,093,026 for the three months ended June 30, 1997
primarily as a result of the amortization of the prepaid consulting expenses
referred to in footnote 3 in the notes to the consolidated financial
statements.
Six months ended June 30, 1997 and 1996 -
Revenues increased from $126,912 for the six months ended June 30, 1996 to
$175,828 for the six months ended June 30, 1997 primarily as a result of the
work over of several wells as well as the purchase of the additional working
interests. Production expenses increased from $113,423 for the six months ended
June 30, 1996 to $159,248 for the six months ended June 30, 1997 primarily as a
result of the work over of several wells.
General and administrative expenses increased from $80,243 for the three months
ended June 30, 1996 to $1,606,364 for the three months ended June 30, 1997
primarily as a result of the amortization of the prepaid consulting expenses
referred to in footnote 3 in the notes to the consolidated financial
statements.
PART II--OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
27 FINANCIAL DATA SCHEDULE
(B) REPORTS ON FORM 8-K
ITEM 2, APRIL 7, 1997.
ITEM 2, APRIL 23, 1997.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereto duly
authorized.
LONE STAR INTERNATIONAL ENERGY, INC.
(Registrant)
Date: July 17, 1997 /s/ C. E. Justice
President (principal executive officer)
Date: July 17, 1997 /s/ Michael D. Herrington
Chief Financial Officer, Treasurer
(principal accounting officer)
<PAGE> 9
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 - Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 547,228
<ALLOWANCES> 20,500
<INVENTORY> 25,000
<CURRENT-ASSETS> 8,247,234
<PP&E> 4,833,110
<DEPRECIATION> 139,453
<TOTAL-ASSETS> 13,024,742
<CURRENT-LIABILITIES> 1,364,260
<BONDS> 0
0
0
<COMMON> 18,215
<OTHER-SE> 11,623,084
<TOTAL-LIABILITY-AND-EQUITY> 13,024,742
<SALES> 175,812
<TOTAL-REVENUES> 175,828
<CGS> 0
<TOTAL-COSTS> 159,248
<OTHER-EXPENSES> 1,621,011
<LOSS-PROVISION> 20,500
<INTEREST-EXPENSE> 11,656
<INCOME-PRETAX> (1,636,587)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,636,587)
<EPS-PRIMARY> (0.123)
<EPS-DILUTED> 0
</TABLE>
