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SECURITIES AND EXCHANGE COMMISSION
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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 QUARTER ENDED JUNE 30, 1996
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: 000-18337
SHARON ENERGY LTD.
(Exact name of registrant as specified in its charter)
BRITISH COLUMBIA, CANADA 84-0820328
(State of Incorporation) (I.R.S. Employer Identification No.)
5995 GREENWOOD PLAZA BLVD., #220, ENGLEWOOD, CO 80111
(Address of principal executive offices) (Zip Code)
(303) 694-4920
(Registrant's telephone number, including area code)
NO CHANGE
(Former name, former address and former
fiscal year, if changed from last report)
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
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As of July 31, 1996, the Registrant had 3,465,100 shares of Common Stock, no par
value, outstanding.
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PART I
FINANCIAL INFORMATION
SHARON ENERGY LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited - Expressed in U.S. dollars)
JUNE 30, MARCH 31,
ASSETS 1996 1996
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CURRENT ASSETS:
Cash and cash equivalents $172,154 $379,133
Short term investments 50,000 53,050
Accounts receivable 119,973 124,844
Prepaid expenses 8,873 8,873
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Total current assets 351,000 565,900
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OIL AND GAS PROPERTIES
Successful efforts method of accounting,
at cost 832,046 793,135
Less--accumulated depreciation, depletion
and amortization (106,336) (92,336)
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725,710 700,799
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FURNITURE, FIXTURES AND EQUIPMENT
at cost less accumulated depreciation 24,718 25,765
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$1,101,428 $1,292,464
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $57,562 $ 103,218
Advances from industry partners 33,442 54,850
Taxes payable 8,583 13,682
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Total current liabilities 99,587 171,750
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Deferred tax liability 58,000 58,000
Deferred rent 52,114 53,903
SHAREHOLDER'S EQUITY
Preferred shares, no par value; 2,500,000 shares
authorized
Common shares, no par value; 10,000,000 shares
authorized; 3,514,800 shares issued and
outstanding at June 30, and March 31, 1996,
respectively 1,326,802 1,326,802
Less: treasury stock (49,700 shares at cost) (49,823) (49,823)
Retained earnings (385,252) (268,168)
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Total shareholders' equity 891,727 1,008,811
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$1,101,428 $1,292,464
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SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
PART I
(CONTINUED)
FINANCIAL INFORMATION
SHARON ENERGY LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited-Expressed in U.S. dollars)
THREE MONTHS ENDED
JUNE 30, JUNE 30,
REVENUES 1996 1995
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Oil and gas sales $ 83,615 $ 37,771
Sales of oil and gas properties 0 15,885
Other 3,093 17,355
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86,708 71,011
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COSTS AND EXPENSES
Lease operating 19,172 18,088
Production taxes 3,017 1,711
General and administrative 139,537 96,439
Depreciation, depletion and amortization 18,139 15,051
Unsuccessful exploration, net 0 106,043
Geologic, geophysical and delay rental costs 23,832 0
Interest 95 0
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203,792 237,332
Loss from operations (117,084) (166,321)
Income tax benefit 0 56,549
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Net loss ($117,084) ($109,772)
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Earnings per common share:
Basic ($0.03) ($0.03)
Fully diluted ($0.03) ($0.03)
Weighted average number of common
shares outstanding 3,514,800 3,326,800
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
PART I
(CONTINUED)
FINANCIAL INFORMATION
SHARON ENERGY LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited - Expressed in U.S. dollars)
THREE MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995
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CASH FROM OPERATING ACTIVITIES:
Net loss ($117,084) ($109,772)
Noncash expenses and revenues included in net loss
Depreciation, depletion and amortization 18,139 15,051
Unsuccessful exploration, net 0 106,043
Gain on sale of oil and gas property 0 (15,885)
decrease in accounts receivable 4,871 20,225
(decrease) in accounts payable (45,656) (156,961)
Deferred tax liability 0 (56,549)
Increase in advances from
industry participants (21,408) 86,821
(Decrease) in taxes payable (5,099) (11,922)
Increase in deferred rent (1,789) (329)
Decrease in other, net 0 5,373
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Net cash used for operating activities (168,026) (117,905)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 0 0
Repayment of debt 0 0
Purchase of company stock 0 0
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Net cash provided by financing activities 0 0
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CASH FLOWS FROM INVESTING ACTIVITIES:
Oil and gas producing activities (38,911) (211,318)
Proceeds from sales of oil and gas properties 0 35,181
Acquisition of furniture & equipment (3,092) (839)
(Purchase) Sale of short term investments 3,050 (10,289)
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Net cash used for investing activities (38,953) (187,265)
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NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (206,979) (305,170)
CASH AND CASH EQUIVALENTS, beginning of period 379,133 723,444
CASH AND CASH EQUIVALENTS, end of period $172,154 $418,274
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
NOTES
PART I (CONTINUED)
FINANCIAL INFORMATION
SHARON ENERGY LTD. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
Note 1. In the opinion of management, the accompanying condensed financial
statements contain all adjustments necessary to present fairly the
financial position as of June 30, 1996 and March 31, 1996 of
Sharon Energy Ltd. and its subsidiary (the "Company") and the
results of its operations and its cash flows for the three month
period ended June 30, 1996 and 1995.
The accounting policies followed by the Company and other relevant
financial statement footnotes are set forth in the Company's
annual report on Form 10-KSB for the fiscal year ended March 31,
1996.
Note 2. The results of operations for the three months ended June 30, 1996 may
not necessarily be indicative of the results of operations that
may be incurred for the entire fiscal year.
Note 3. Basic and fully diluted earnings per share are computed by dividing
net income by the summation of the weighted average number of
common shares outstanding during the period and the dilutive
effect of outstanding stock options. However, in the quarters
ended June 30, 1996 and 1995, no consideration was given as their
effects would be antidilutive or immaterial.
Note 4. The consolidated financial statements are prepared in accordance with
generally accepted accounting principles ("GAAP") in Canada.
These consolidated financial statements would not be materially
different if they had been prepared using generally accepted
accounting principles in the United States, except that under U.S.
GAAP, the Company was required to adopt Statement Number 109
("SFAS 109"), "Accounting For Income Taxes", effective April 1,
1993. The provisions of SFAS 109 do not comply with GAAP in
Canada and have not been adopted by the Company. The difference
in accounting methods would result in no impact to the Company's
Consolidated Statement of Operations for the three month period
ended June 30, 1996. However, for U.S. GAAP purposes, the Company
would reflect a deferred tax asset of approximately $296,000 which
would be fully reserved for with a valuation allowance as it is
more likely than not that the deferred tax asset would not be
utilized at June 30, 1996. The net deferred tax asset would
consist primarily of carryover statutory depletion and U.S. net
operating loss carry-forward.
<PAGE>
SCHEDULE C
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
FINANCIAL CONDITION AND LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital surplus was $251,413 at June 30, 1996 compared to
a surplus of $394,150 at March 31, 1996. The Company's working capital
decreased due to capital expenditures associated with the Company's exploration
programs and a loss from operations more fully described below. In the opinion
of management, current cash flow projections indicate the Company can meet its
operating overhead and expense requirements.
The timing of most of the Company's capital expenditures is discretionary.
There are no material long-term commitments associated with the Company's
capital expenditure plans. Consequently, the Company has a significant degree
of flexibility to adjust the level of such expenditures as circumstances
warrant. Presently, the Company is using internally generated cash flow to fund
capital expenditures. The level of capital expenditures will vary in future
periods depending on the success it experiences in its development and
exploratory drilling activities, oil price conditions and other related economic
factors. In addition to internally generated cash flow, additional bank debt
financing may be used in future periods for oil and gas wells completed on its
prospects. Commencing on July 1, 1996, the Company began an offering of up to
2,000,000 shares of its common stock with warrants to purchase up to 1,000,000
shares of its common stock. The common stock is being offered at $.50 U.S. per
share and each warrant will be exercisable within one year to purchase one share
of common stock at a price of $.70 U.S. per share. The net proceeds to the
Company from the sale of the units are estimated to be approximately $900,000
net of commissions if the maximum number of shares are sold. In addition, the
Company may receive additional gross proceeds of up to $700,000 upon exercise of
the warrants issued in connection with the offering, assuming the maximum number
of units are sold. The net proceeds of this offering will be used to drill and
complete up to ten oil and gas wells and for exploration and land acquisition
costs applicable to the Company's California exploration activities. It is not
possible at this time to predict how much capital will be raised from this
offering.
FINANCIAL RESULTS
During the first quarter ended June 30, 1996, the Company experienced an
increase in oil and gas revenues as compared to the prior year quarter due to
the addition of several producing wells and higher oil and gas prices compared
to a year ago.
Oil and gas sales for the three months ended June 30, 1996 were $83,615 compared
to $37,771 for the three months ended June 30, 1995, a 121% increase. Company
net oil production totaled 1,388 bbls. in the latest quarter as compared to 590
bbls. during the prior year quarter, a 35% increase. Average crude oil prices
were $19.33 per barrel during the quarter ended June 30, 1996 compared to $17.02
in the prior fiscal year first quarter, a 14% increase. Gas production
increased from 25,546 mbtu in the prior year period to 30,509 mbtu in the
quarter ended June 30, 1996, a 19% increase. Average gas prices were $1.44 in
the latest period compared to $1.04 in the prior year period, a 38% increase.
General and administrative expenses for the three months ended June 30, 1996 and
1995 were $139,537 and $96,439, respectively, a $43,098 or 45% increase. The
major reason for the increase in general and administrative expense was due to
timing differences between quarterly periods in the booking of the Company's
annual audit fee and rent expense. No other major expense category exhibited a
material variance in the latest period as compared to the prior year period.
<PAGE>
Oil and gas production expenses (lease operating and production tax expense
combined) for the three months ended June 30, 1996 and 1994 were $22,180 and
$19,799, respectively, a $2,381 (12%) increase. The increase in production
expense is a result of the addition of several producing wells over the past
twelve months.
Unsuccessful exploration expense decreased from $106,043 last year to $0 in the
latest quarter due to decreased drilling activity in the latest quarter as
compared to the prior year.
Geologic, geophysical and delay rentals costs increased from $0 last year to
$23,832 in the latest period primarily due to the Company's exploration
activities in California.
As of June 30, 1996 the Company was committed to drill two wells at a combined
cost of $71,000 net to the Company's interest.
FINANCIAL OUTLOOK
During the past eighteen months, the Company has conducted exploration and
development activities in California, Colorado, Kansas, Illinois, Michigan
and Wyoming. The Company is tentatively planning to drill up to
approximately eight gross wells on its acreage in Michigan and California.
Total estimated costs if the Company drills, completes and hooks eight wells
up for production are $278,200 net to the Company's interest in the wells,
which ranges from 3% to 21%. The choice and timing of additional locations
will depend on the performance of the initial wells and availability of
additional capital. The Company is acquiring additional leasehold in
California and Michigan which management considers prospective and may
conduct additional seismic surveys in those areas. It is anticipated that
these activities together with others that may be entered into will impose
financial requirements which will exceed the existing working capital of the
Company. As mentioned previously, the Company is attempting to raise
additional capital through the private placement issuance of common stock.
There is no assurance that the offering will succeed in raising the necessary
capital. In the event the Company is not successful in raising additional
equity or debt financing, the Company may consider selling producing and
non-producing assets to raise the necessary capital and could be compelled to
reduce the scope of its planned business activities if the necessary funding
is not obtained.
<PAGE>
PART II
OTHER INFORMATION
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SHARON ENERGY LTD.
Date: July 31, 1996 By /s/ J. Chris Steinhauser
-----------------------------
J. Chris Steinhauser
Chief Financial Officer and
Chief Accounting Officer
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