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SECURITIES AND EXCHANGE COMMISSION
------------------------------
WASHINGTON, D.C. 20549
FORM 10-KSB
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED MARCH 31, 1997
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
------------------- -------------------
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Stock, no par value.......... Boston
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained within this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $623,059As of June 27,
1997, 5,863,800 shares of the registrant's common stock were outstanding and the
aggregate market value of such common stock held by non-affiliates was
approximately $1,688,925 based on the bid ($0.375) price on that date.
The proxy statement for the 1997 annual meeting is incorporated by reference
into Part III.
Traditional Small Business Disclosure Format: Yes No X Exhibit table is
on page 41.
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SHARON ENERGY LTD.
INDEX TO ANNUAL REPORT
ON FORM 10-KSB
FISCAL YEAR ENDED MARCH 31, 1997
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PART I
ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ITEM 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . . . . . . . 11
PART II
ITEM 5. MARKET PRICE OF, AND DIVIDENDS ON, THE COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . 12
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. . . . . . . . . . . . . 16
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT . . . . . . . . . . . . . . . . . . . 40
ITEM 10. EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . 40
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. . . 40
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS CONDITION AND RESULTS
OF OPERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K AND
FORM 8-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
2
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PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Sharon Energy Ltd. was incorporated in February 1980 under the laws of the
Province of British Columbia, Canada. Sharon Energy Ltd. operates through a
wholly-owned Colorado subsidiary, Sharon Resources, Inc. and is engaged in
exploration and development of oil and gas reserves entirely within the United
States.
For convenience of reference, the consolidated entity of Sharon Energy Ltd. and
Sharon Resources, Inc. will be collectively referred to herein as the "Company"
or the "Registrant".
In its seventeen years of operation, the Company has drilled a total of 174
wells (both operated and non-operated) and completed 122 wells for production.
During the fiscal year ended at March 31, 1995, the Company sold substantially
all of its producing well interests. The producing well interests sold were
located in Kansas, Pennsylvania and Wyoming and represented approximately 85%
and 95% of the Company's gross and net cash flows from oil and gas operations
for the year ended March 31, 1995.
During fiscal 1996 and 1997, the Company has reinvested the proceeds from these
dispositions into exploration and development activities in Colorado,
California, Michigan, Kansas, Illinois and Wyoming. During the latest fiscal
year ended March 31, 1997, the Company's principal area of activity has been in
the northern Sacramento Basin portion of California. The scope of these
activities are described in detail under Item 2. Properties.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Since the Company is presently actively engaged in only one industry, oil and
gas exploration, development and sale of production, this paragraph is not
applicable to the Company; see Item 7 herein for general financial information
concerning the Company.
(c) NARRATIVE DESCRIPTION OF BUSINESS
The Company is engaged in the exploration for and development of properties
containing or believed to contain recoverable oil and gas reserves and the sale
of production from such reserves.
All of the Company's business interests have been centered in the United States
of America with a majority of its exploration activities focused in Northern
California during the preceding year.
The Company intends to drill a minimum of 3 test wells on its undeveloped
acreage during the next six months. See further, Item 2 herein.
(i) PRINCIPAL PRODUCTS
The Company has working interests in various oil and gas properties
(developed and undeveloped). See Item 2 herein for a general description
of these properties.
(ii) STATUS OF PRODUCT OR SEGMENT
At present, the properties in which the Company has interests are both
producing and undeveloped properties. See Item 2 herein for a general
description of these properties.
(iii) RAW MATERIALS
This is not applicable to the Company.
(iv) PATENTS, TRADEMARKS, LICENSES, FRANCHISES AND CONCESSIONS HELD
3
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Permits are important to the Company's operations, since they allow the
search for the extraction of any oil, gas and minerals discovered on the
areas covered. See further, Item 2 herein.
(v) SEASONALITY OF BUSINESS
The Company's business is not seasonal.
(vi) WORKING CAPITAL ITEMS
The majority of the Company's current assets are in the form of cash and
accounts receivable, which are required to pay for the cost of operations.
See further, Item 6 herein.
(vii) CUSTOMERS
Oil production is sold at the wellhead to various crude oil purchasers at
the prevailing price for, or at a slight discount to, West Texas
Intermediate Oil. Gas production is currently sold at a Mid-Continent Index
price less transportation. Energetics, Ltd. Purchases all of the
Company's crude oil production in Michigan and Aurora Natural Gas purchases
all of the Company's gas production in southeastern Colorado, together
constituting nearly 100% of total oil and gas revenues.
(viii) BACKLOG
This is not applicable to the Company.
(ix) RENEGOTIATION OF BUSINESS OR TERMINATION OF CONTRACTS OR
SUBCONTRACTS AT THE ELECTION OF THE GOVERNMENT
This is not applicable to the Company.
(x) COMPETITIVE CONDITIONS IN THE BUSINESS
The petroleum and natural gas industry is highly competitive and the
Company competes with a substantial number of other companies that have
greater resources. Many such companies not only explore for, produce and
market petroleum and natural gas but also carry on refining operations and
market the resultant products on a world wide basis. There is also
competition between petroleum and natural gas producers and other
industries producing energy and fuel. Furthermore, competitive conditions
may be substantially affected by various forms of energy legislation and/or
regulation considered from time to time by the governments (and/or agencies
thereof) of the United States and Canada; however, it is not possible to
predict the nature of any such legislation and/or regulation which may
ultimately be adopted or its effects upon the future operations of the
Company. Such laws and regulations may, however, substantially increase
the costs of exploring for, developing or producing oil and gas and may
prevent or delay the commencement or continuation of a given operation.
The exact effect of these risk factors cannot be accurately predicted.
(xi) BUSINESS RISKS
The operations of the Company are subject to the many risks and hazards
incident to drilling for, producing and transporting oil and gas,
including blowouts, fires, pollution and equipment failures. Such hazards
may result in damage to or destruction of wells, producing formations,
production facilities and equipment and personal injuries.
Oil and gas exploration and development involves a high degree of risk,
which even a combination of experience, knowledge and careful evaluation
may not be able to overcome. There is no assurance that additional oil
and gas in commercial quantities will be discovered or acquired by the
Company. The marketability of the Company's oil and gas reserves or of
reserves which may be acquired or discovered by the Company may be
affected by numerous factors beyond the control of the Company. These
factors include fluctuations in product markets and prices, the proximity
and capacity of pipelines to the Company's oil and gas reserves, the
ability of the Company to finance exploration and development costs and
the availability of processing equipment. Additional factors are
engineering and construction delays, difficulties and hazards resulting
from unusual or unexpected geological or environmental conditions, or to
the conditions involved in drilling and operating wells.
4
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Oil and gas operations also involve the risk that well fires, blowouts,
equipment failure, human error and other circumstances may cause
accidental leakage of toxic or hazardous materials, such as petroleum
liquids or drilling fluids into the environment, or cause other injuries
to persons or property. In such event, substantial liabilities to third
parties or governmental entities may be incurred, the payment of which
could substantially reduce available cash and possibly result in loss of
oil and gas properties. Such hazards may also cause damage to or
destruction of wells, producing formations, production facilities and
pipeline or other processing facilities.
Drilling and completion of oil and gas wells is hazardous and involves a
high degree of risk. In addition to the substantial risk that wells
drilled will not be productive, hazards such as unusual or unexpected
formations, pressures, down-hole fires, mechanical failures, blow-outs
and loss of circulation of drilling fluids are inherent in oil and gas
exploration. Even though a well is completed and is found to be
productive, water, sulfur, or other deleterious substances may also be
produced that may impair or prevent production or impair or prevent the
marketing of such production. Drilling operations may also be susceptible
to delays caused by inclement weather and the resulting condition of the
terrain. If any of such hazards and delays are encountered while
conducting operations, substantial unbudgeted and unexpected costs may be
incurred.
As is common in the oil and gas industry, the Company will not insure
fully against all risks associated with its business either because such
insurance is not available or because premium costs are considered
prohibitive. A loss not fully covered by insurance could have a
materially adverse effect on the financial position and results of
operations of the Company.
The Company is a non-operating working interest owner in some of its
properties. Accordingly, the Company enters into joint operating
agreements with third party operators for the conduct and supervision of
drilling, completion and production operations on its wells. The success
of the oil and gas operations on a property (whether drilling operations
or production operations) depends in large measure on whether the operator
of the property properly performs its obligations. The failure of such
operators and their contractors to perform their services in a proper
manner could result in materially adverse consequences to the owners of
interests in that particular property.
As is customary in the oil and gas industry, only a perfunctory title
examination is conducted at the time properties believed to be suitable
for drilling operations are first acquired. Prior to the commencement of
drilling operations, a more thorough title examination is usually
conducted and curative work is performed with respect to known significant
title defects. The Company typically depends upon title opinions prepared
at the request of the operator of the property to be drilled; and,
therefore, there can be no assurance that losses will not result from
title defects or from defects in the assignment of leasehold rights.
Pursuant to industry standard forms of operating agreements, the operator
of an oil and gas property is not to be monetarily liable for loss of
title.
(xii) REGULATIONS
Domestic exploration for, and production and sale of, oil and gas are
extensively regulated at both the federal and state levels. Legislation
affecting the oil and gas industry is under constant review for amendment
or expansion, frequently increasing the regulatory burden. Also, numerous
departments and agencies, both federal and state, are authorized by
statute to issue, and have issued, rules and regulations binding on the
oil and gas industry that often are costly to comply with and that carry
substantial penalties for failure to comply. In addition, production
operations are affected by changing tax and other laws relating to the
petroleum industry, by constantly changing administrative regulations and
possible interruptions or termination by government authorities.
Effective January 1, 1993, all price controls on natural gas were
eliminated ending decades of federal pricing control of natural gas. The
impact of price decontrol on the Company is uncertain but at present would
appear not to cause a material adverse effect on the business of the
Company.
In the late 1980's the Federal Energy Regulatory Commission ("FERC"),
through a series of orders, made major changes in certain of its
regulations that have since significantly affected the transportation and
marketing of gas. These regulations required gas pipelines to transport
gas on a non-discriminatory basis. As a result, many pipelines have
become transporters of gas owned by others and have greatly reduced their
purchases of gas for resale.
On April 8, 1992, FERC issued Order No 636 which substantially overhauled
the current regulation of interstate natural gas pipelines ("Order 636").
Order 636 requires the pipelines to "unbundle" their transportation and
sales functions and furnish transportation service for others on a
comparable basis as it transports gas for itself. The changes provided by
Order 636 are intended to ensure that pipelines provide transportation
service that is equal in
5
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quality for all gas supplies, whether the customer purchases the gas from
the pipeline or from another supplier. On August 3, 1992, FERC issued
Order No. 636-A which largely denied rehearing of Order 636. FERC is
examining the overall relationship between interstate pipelines and their
customers, local distribution companies and end users. Although it is
FERC's present intention to stimulate competition and to create a level
playing field for all natural gas buyers and sellers, there can be no
assurances that such regulations will ultimately be implemented. It is
not possible to predict what impact Order 636 will have on the Company's
ability to sell gas directly into gas markets previously served by the
pipelines.
State regulatory authorities have established rules and regulations
requiring permits for drilling operations, drilling bonds and reports
concerning operations. Most states in which the Company operates also
have statutes and regulations governing a number of environmental and
conservation matters, including the unitization or pooling of oil and gas
properties and establishment of maximum rates of production from oil and
gas wells. Many states also restrict production to the market demand for
oil and gas. Such statutes and regulations may limit the rate at which
oil and gas could otherwise be produced from the Company's properties.
The Company is subject to extensive and evolving environmental laws and
regulations. These regulations are administered by the United States
Environmental Protection Agency ("EPA") and various other federal, state,
and local environmental, zoning, health and safety agencies, many of which
periodically examine the Company's operations to monitor compliance with
such laws and regulations. These regulations govern the release of waste
materials into the environment, or otherwise relating to the protection of
the environment, human, animal and plant health, and affect the Company's
operations and costs. In recent years, environmental regulations have
taken a "cradle to grave" approach to waste management, regulating and
creating liabilities for the waste at its inception to final disposition.
The Company's oil and gas exploration, development and production
operations are subject to numerous environmental programs, some of which
include solid and hazardous waste management, water protection, air
emission controls, and situs controls affecting wetlands, coastal
operations, and antiquities.
Environmental programs typically regulate the permitting, construction and
operations of a facility. Many factors, including public perception, can
materially impact the ability to secure an environmental construction or
operation permit. Once operational, enforcement measures can include
significant civil penalties for regulatory violations regardless of
intent. Under appropriate circumstances, an administrative agency can
request a "cease and desist" order to terminate operations.
Newly strengthened environmental programs, such as the Clean Air Act
Amendments of 1990, will impact the Company's operations. New programs
and changes in existing programs are anticipated, some of which include
Natural Occurring Radioactive Materials ("NORM"), oil and gas exploration
and production waste management, and underground injection of waste
materials.
Each state in which the Company operates has laws and regulations
governing solid waste disposal, water and air pollution. Many states also
have regulations governing oil and gas exploration, development and
production operations.
The Company is also subject to Federal and State Hazard Communications
("OSHA") and Community Right to Know ("SARA Title III") statutes and
regulations. These regulations govern record-keeping and reporting of the
use and release of hazardous substances. The Company believes it is in
compliance with these requirements in all material respects.
The Company may be required in the future to make substantial outlays to
comply with environmental laws and regulations. The additional changes in
operating procedures and expenditures required to comply with future laws
dealing with the protection of the environment cannot be predicted.
(xiii) NUMBER OF PERSONS EMPLOYED BY REGISTRANT
The Company currently has six full-time employees. The Company also
employs consultants on a part time basis as needed.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES
Since none of the Company's property interests and revenues are located or
derived outside of the United States, this paragraph is not applicable to the
Company.
6
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ITEM 2. PROPERTIES
GENERAL
The Company holds interests in producing properties and undeveloped acreage in
six states, with the most significant concentrations of properties in Colorado,
California and Michigan.
COMPANY RESERVES
The Company's total net ownership in oil and gas reserves is based on
independent engineering reports. The reserve quantities and valuations for
fiscal 1997 and 1996 are based upon estimates by Norstar Petroleum, Inc.
Proved reserves are those that can be recovered through existing wells with
existing equipment and existing (either operating or tested) recovery
techniques. The Company's producing reserves include those expected to be
produced from existing completion intervals now open for production in existing
wells.
The Company wishes to emphasize that the estimates included in the following
tables are by their nature inexact and are subject to changing economic,
operating and contractual conditions.
These reserves are located entirely within the United States.
SHARON ENERGY LTD.
HISTORICAL RESERVE INFORMATION
AS OF MARCH 31, 1997 AND 1996
--------------------------------------------------------------
DESCRIPTION 1997 1996
--------------------------------------------------------------
Proved Developed Reserves
Oil (bbls) 4,750 30,071
Gas (mcf) 822,039 1,047,645
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Proved Reserves
Oil (bbls) 4,750 30,071
Gas (mcf) 2,227,000 2,449,788
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Future Net Cash Flows
before Income Tax $1,256,000 $1,493,000
--------------------------------------------------------------
Standardized Measure of
Discounted Future Net Cash Flows $583,000 $782,000
--------------------------------------------------------------
SOUTHEASTERN COLORADO
In southeastern Colorado, management has initiated an exploration and
development program resulting in the completion of three gas wells currently
producing a combined rate of five hundred thousand cubic feet of gas per day.
All of the gas is currently being sold to Aurora Natural Gas Marketing Company.
The Company, acting as operator, has retained a 65.625% working interest in the
wells and surrounding acreage. The Company has room to drill at least two
additional proved locations on its acreage position but has deferred such
drilling pending attempts to sell its interest in the properties.
WYOMING
The Company has acquired leases on approximately 8,000 gross and net acres which
it considers prospective for natural gas development. The Company has sold an
83.75% working interest in the prospect for total cash consideration of
$180,000. The Company plans to participate for a 16.25% non-operated working
interest in the project. Current plans are to drill at least one test well or
cause a test well to be drilled thereon within the next twelve months.
7
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ILLINOIS
The Company has identified a series of geological and geophysical leads in the
Illinois Basin which it considers prospective. Leasing efforts are being
completed on one prospect and the Company plans at least one test well thereon
during fiscal 1998.
MICHIGAN
The Company has purchased working interests ranging from 12.24% to 21.04% in
approximately 1,000 gross acres in Missaukee County, Michigan. To date, the
Company has participated in the drilling of three wells which are currently
producing. The Company has received a proposal dated June 12, 1997 to drill a
fourth well on the acreage. Due to economic uncertainties concerning the wells
drilled to date, The Company has elected to farmout its position in the well
instead of participating for a 12.24% working interest. Management will monitor
production from the wells to determine whether future development is warranted.
Dart Oil and Gas Corporation of Mason, Michigan, is operator of the project.
The producing depth is 3,300 to 3,900 feet with the Dundee and Traverse Lime
formations as principal targets.
CALIFORNIA
The Company has participated in three 3-D seismic surveys in the Northern
Sacramento Basin of California. The Company has purchased non-operated working
interests ranging from 3% to 18.75% in approximately 20,000 gross acres and has
participated in the acquisition of approximately 50 square miles of 3-D seismic
in Sutter and Colusa Counties. It is not possible at this time to estimate the
total number of drilling locations or the drilling costs associated with these
prospects. Two initial drilling attempts in these prospects during fiscal 1997
encountered gas bearing sandstone reservoirs in the Cretaceous age Forbes
section, however, due to low gas saturations the wells were deemed to be non-
commercial and were plugged and abandoned. The Company had a 25% and a 6%
working interest, respectively, in the wells. It is anticipated that
additional drilling will take place in the prospect areas during fiscal 1998.
In addition, the Company has entered into a joint venture for the exploration of
gas utilizing 2-D and 3-D seismic within an 840 square mile area of the northern
Sacramento Basin, California. Sharon will retain a 40% working interest and act
as Operator of the joint venture. Sharon's partners in the joint venture
include Black Coral LLC and Hallador Petroleum Company, both of Denver. Black
Coral will be providing technical support to the joint venture and Hallador will
be joining Sharon as a 60% working interest partner.
The joint venture utilized an existing geoscientific database to develop
prospects and leads that can either be drilled or upgraded to drillable status
utilizing 3-D seismic. The primary drilling objective of the joint venture are
gas sands in the Cretaceous Kione, Forbes and Guinda formations. To date two
3-D and several 2-D prospects have been developed.
The first 3-D prospect is the "Merlin" prospect and is located in Glenn County,
California. The Company has completed a 15.5 square mile 3-D seismic survey
and identified seven initial drilling locations thereon based on interpretation
of the data. Drilling of two wells in the survey commenced in May of this
year, one which was completed for production and one which was abandoned as a
dry hole. Total estimated costs incurred for the two wells were $232,000 net to
the Company's 40% working interest. The Company plans to begin producing the
well in July. The Company is also in final negotiations to purchase a producing
well, acreage and a gathering system which are located within the Merlin
Prospect survey area. The estimated cost of the acquisition net to the
Company's 40% share is $86,000. The gathering system will allow the Company to
connect its existing producer as well as subsequent wells drilled to an already
existing pipeline system. The acreage being acquired as part of the purchase
contains several seismic anomolies and the producing well contains behind pipe
reserves. Management is also evaluating the sale of up to half of its interest
in the Merlin Prospect in order to reduce its costs exposure on future wells
drilled within the prospect area.
DISPOSITION OF PROPERTIES
During fiscal 1995, the Company sold a majority of its producing wells. More
recently, during fiscal 1997, the Company sold working interests in two
producing wells located in western Kansas. The net cash proceeds realized from
the sale of the two wells was $132,500. The Company is currently attempting to
sell its producing well interests in Colorado as part of a strategy of divesting
non-strategic assets. The Company and officers, directors and affiliates have
no mutual relationship with the purchasers of the properties or anyone
associated therewith.
8
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WELL STATISTICS
The following table sets forth certain information, as of March 31, 1997,
relating to productive wells in which the Company owns working interests:
SHARON ENERGY LTD.
WELL STATISTICS
AS OF MARCH 31, 1997
---------------------------------------
GROSS PRODUCTIVE WELLS
---------------------------------------
Oil 3
Gas 3
Total 6
---------------------------------------
NET PRODUCTIVE WELLS
---------------------------------------
Oil 0.50
Gas 1.96
Total 2.46
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ACREAGE STATISTICS
The following table sets forth the developed acreage and undeveloped acreage of
the Company as of March 31, 1997:
SHARON ENERGY LTD.
ACREAGE HOLDINGS
AS OF MARCH 31, 1997
---------------------------------------------------------
UNDEVELOPED ACREAGE ACRES
---------------------------------------------------------
---------------------------------------------------------
GROSS
California 24,766
Colorado 7,280
Kansas 560
Illinois 511
Michigan 2,149
Wyoming 8,202
---------------------------------------------------------
GROSS UNDEVELOPED ACREAGE 43,468
---------------------------------------------------------
---------------------------------------------------------
NET
California 3,755
Colorado 4,505
Kansas 240
Illinois 183
Michigan 580
Wyoming 8,088
---------------------------------------------------------
NET UNDEVELOPED ACREAGE 17,351
---------------------------------------------------------
---------------------------------------------------------
DEVELOPED ACREAGE ACRES
---------------------------------------------------------
---------------------------------------------------------
GROSS
California 800
Colorado 1,151
Kansas 640
Illinois 0
Michigan 1,111
Wyoming 0
---------------------------------------------------------
GROSS UNDEVELOPED ACREAGE 3,702
---------------------------------------------------------
---------------------------------------------------------
NET
California 162
Colorado 748
Kansas 47
Illinois 0
Michigan 139
Wyoming 0
---------------------------------------------------------
NET UNDEVELOPED ACREAGE 1,096
---------------------------------------------------------
---------------------------------------------------------
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DRILLING ACTIVITY
The following table sets forth the results of the Company's drilling activities
in the fiscal years ended March 31, 1997 and 1996:
SHARON ENERGY LTD.
SUMMARY OF DRILLING ACTIVITY
FOR FISCAL YEARS ENDING MARCH 31, 1997 AND 1996
----------------------------------------------------------
EXPLORATORY WELLS 1997 1996
----------------------------------------------------------
GROSS
Productive 0 3
Dry 3 4
----------------------------------------------------------
TOTAL 3 7
----------------------------------------------------------
----------------------------------------------------------
NET
Productive 0.00 0.57292
Dry 0.4975 1.56250
----------------------------------------------------------
TOTAL 0.4975 2.13542
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
DEVELOPMENT WELLS 1997 1996
----------------------------------------------------------
GROSS
Productive 1 0
Dry 0 0
----------------------------------------------------------
TOTAL 1 0
----------------------------------------------------------
----------------------------------------------------------
NET
Productive .2104 0
Dry 0 0
----------------------------------------------------------
TOTAL .2104 1.3125
----------------------------------------------------------
----------------------------------------------------------
SUBSEQUENT DRILLING ACTIVITY
The Company plans to drill a minimum of three test wells on its undeveloped
acreage during the next six months.
ITEM 3. LEGAL PROCEEDINGS
As of March 31, 1997, the Company was not a party to any legal proceeding or
action of a material nature.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the last quarter of the fiscal year covered by
this report to a vote of shareholders of the Company through the solicitation of
proxies or otherwise.
11
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PART II
ITEM 5. MARKET PRICE OF, AND DIVIDENDS ON, THE COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's common stock is presently being traded on the Vancouver Stock
Exchange in Canada and on the Boston Stock Exchange in the United States.
The following table sets forth the closing high and low trading prices in U.S.
dollars on the Boston Stock Exchange for each of the periods indicated below for
the Company's common stock:
SHARON ENERGY LTD.
BOSTON STOCK EXCHANGE SALES PRICE
FOR
SHARON ENERGY LTD. COMMON STOCK
----------------------------------------------------------------------------
FISCAL YEAR ENDING 3/31 1997 1996
----------------------------------------------------------------------------
HIGH LOW HIGH LOW
-------------------------------------
First Quarter $ 0.22 $ 0.22 $ 0.38 $ 0.25
Second Quarter $ 0.22 $ 0.50 $ 0.40 $ 0.31
Third Quarter $ 0.63 $ 0.38 $ 0.50 $ 0.25
Fourth Quarter $ 1.06 $ 0.66 $ 0.75 $ 0.38
----------------------------------------------------------------------------
The following table sets forth the closing high and low closing prices in
Canadian dollars on the Vancouver Stock Exchange for each of the periods
indicated below for the Company's common stock:
SHARON ENERGY LTD.
VANCOUVER STOCK EXCHANGE SALES PRICE
FOR
SHARON ENERGY LTD. COMMON STOCK
(CANADIAN DOLLARS)
----------------------------------------------------------------------------
FISCAL YEAR ENDING 3/31 1997 1996
----------------------------------------------------------------------------
HIGH LOW HIGH LOW
-------------------------------------
First Quarter $ 0.98 $ 0.50 $ 0.30 $ 0.30
Second Quarter $ 0.75 $ 0.50 $ 0.30 $ 0.17
Third Quarter $ 0.75 $ 0.45 $ 0.30 $ 0.28
Fourth Quarter $ 1.80 $ 0.65 $ 1.00 $ 0.33
----------------------------------------------------------------------------
As of March 31, 1997, there were 575 estimated holders of the Company's common
stock of record, of which 127 were U.S. registered shareholders. In many
instances, a registered shareholder is a broker holding shares in street name.
No cash dividends were paid by the Company during the fiscal year ended March
31, 1997. For the foreseeable future, the Company intends to retain any
available funds otherwise available for dividends for use in the expansion of
its business.
During the fiscal year ended March 31, 1993, the Company initiated a Corporate
stock buy-back program in which it repurchased 49,700 shares of Sharon Energy
Common Stock through an open market repurchase program. The repurchases
12
<PAGE>
took place over a six month period ending August 18, 1992, with the
repurchased shares being retired to Treasury. During fiscal 1997, the
Company issued 12,500 of the treasury shares in connection with a property
acquisition.
Effective April 13, 1992, the Company's Common Stock began trading on the Boston
Stock Exchange under the symbol SHA. The Company's stock could henceforth be
traded as a listed security in the U.S. and is not considered a designated
security subject to the Securities and Exchange Commission Rule 15c2-6 trading
restrictions.
There are no governmental laws, decrees or regulations in Canada that restrict
the export or import of capital, including but not limited to, foreign exchange
controls, other than tax withholding affecting the remittance of dividends,
interest or other payments to non-residents. The remittance of dividends to
non-resident shareholders is discussed below under "Taxation".
There are no special limitations on the right of non-resident or foreign
shareholders to hold or vote the Company's common stock imposed by Canadian law
or by the articles of incorporation and by- laws of Sharon Energy Ltd. except
that the British Columbia "B.C." Company Act requires that a majority of the
directors of the Company must be Canadian citizens and at least one director
must be a British Columbia resident. The British Columbia Securities Act
imposes special "insider" disclosure requirements on persons who own more than
10% of the Company's common stock regardless of such person's residency.
Insiders are required to file Insider Reports which disclose number of shares
owned and acquisitions and dispositions of the Company's common stock. The
British Columbia Securities Act also imposes certain limitations on the
disposition of the Company's shares by persons owning 20% or more of the
Company's common stock. However, such limitations are imposed regardless of
such person's residency.
Although there are restrictions imposed on the acquisition of control of certain
Canadian companies by non-Canadians under the Investment Canada Act, such
restrictions do not apply to the acquisition of control of the Company's common
stock since substantially all of the Company's assets are in the U.S. and all of
the Company's operations are conducted in the U.S.
TAXATION Any dividends paid by the Company to non-residents of Canada are
subject to a withholding tax at the rate of 25%. The Canada United States Tax
Conventions reduces this rate to 15% on dividends payable to United States
shareholders. Amounts withheld under Canadian tax law may be credited against a
U.S. shareholder's U.S. tax liability. The credit is available to U.S.
shareholders on foreign income, excess profits taxes, and similar taxes in the
nature of an income tax. The foreign income tax credit is based on the amount
of foreign taxes paid or accrued, translated into U.S. currency, and is limited
where the foreign taxes exceed the effective U.S. tax rate on the foreign
income.
For Canadian income tax purposes, where non-resident persons (i.e., U.S.
resident) together with all other related persons own not less than 25% of the
issued shares of any class of the capital stock of a Canadian corporation, they
may also be subject to tax in Canada on the disposition of those shares.
However, Article XIII of the Canada-U.S. Tax Convention will exempt such U.S.
shareholders because the Company's value is based on oil and gas operations or
real property situated in the U.S.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
FINANCIAL CONDITION AND LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital surplus was $452,373 at March 31, 1997 compared to
a surplus of $394,150 at March 31, 1996. The Company's working capital
increased due to dispositions of proved and unproved oil and gas properties and
proceeds raised from issuances of the Company's common shares and warrants.
Exploration drilling is scheduled during fiscal 1998 on the Company's California
acreage. It is anticipated that these exploration activities together with
others that may be entered into will impose financial requirements which will
exceed the existing working capital of the Company. Management is evaluating
selling producing and non-producing leaseholds and reducing its working interest
percentage in proposed exploratory wells to finance its continued participation
in the wells. In the event these efforts are unsuccessful, the Company will be
compelled to reduce the scope of its business activities and take further steps
to reduce general and administrative expenses.
The Company did not utilize any debt financing during fiscal 1997 and 1996.
DISPOSITION OF PROPERTIES
During fiscal 1995, the Company sold a majority of its producing wells. The
Company made no significant dispositions
13
<PAGE>
during fiscal 1996 but sold producing well interests in fiscal 1997 totaling
$132,500. The Company is currently trying to dispose of its Colorado
producing properties.
FINANCIAL OUTLOOK
In fiscal 1997 and 1996, oil and gas sales, sales of properties, cost of sales
and overhead reimbursements (operator fees) have declined substantially from
historical levels resulting in operating losses. Until the Company is able to
replace the reserves and production disposed of, continued operating losses are
anticipated. Furthermore, there is no assurance that efforts to restore
previous reserve and production levels will be successful.
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 existing working capital and
internally generated cash flow from oil and gas sales to fund capital
expenditures and overhead requirements. The level of capital expenditures will
vary in future periods depending on the success it experiences in its
development and exploratory drilling activities, gas and 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. During fiscal 1997, the Company issued
2,000,000 common shares for net proceeds, after commissions and direct expenses,
of Canadian $907,561 (U.S. $670,888). In connection with the stock issuance,
the Company issued 2,000,000 Class B Warrants which are exercisable into
2,000,000 common voting shares at a price of Canadian $0.60 per share. The
Class B Warrants have expiration dates ranging from December 10, 1997 to
February 12, 1998. In addition, the Company issued 150,000 common voting shares
as a corporate finance fee and 350,000 Class C Warrants for services rendered in
connection with the offering. The Class C Warrants are exercisable into 350,000
common voting shares at a price of Canadian $0.50 per share and expire on
February 12, 1998. The net proceeds of these offerings have been or will be
used as part of the capital necessary for the Company to conduct 3-D seismic and
drill wells in connection with the Company's California exploration activities.
COMPARISON RESULTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
During the year ended March 31, 1997, the Company experienced an increase in oil
and gas revenues as compared to the prior year period due to increased oil
production and higher oil and gas prices.
Oil and gas sales for the year ended March 31, 1997 were $272,859 compared to
$211,729 for the year ended March 31, 1996, a 29% increase. Company net oil
production totaled 4,821 bbls. in the latest period as compared to 4,107 bbls.
during the prior year period, a 17% increase. Average crude oil prices were
$20.82 per barrel in the year ended March 31, 1997 compared to $16.93 in the
prior year period, a 23% increase. Company net gas production totaled
103,251mcf in the latest period as compared to 126,823 mcf during the prior year
period, a 19% decrease. Average gas prices were $1.67 per mcf in the year ended
March 31, 1997 compared to $1.06 in the prior year period, a 58% increase.
Sales of oil and gas properties and cost of properties sold increased materially
in the fiscal year 1997 compared to fiscal year 1996 due to the sale during
fiscal 1997 of producing properties located in Kansas in the amount of $132,500
and sales of unproven properties located totaling $210,193, of which $180,000
resulted from the sale of the Company's undeveloped acreage in its Shaman
(Wyoming) Prospect.
General and administrative expenses for the year ended March 31, 1997 and 1996
were $509,807 and $448,099, respectively, a $61,708 (14%) increase. The
increase was due to indirect expenses related to the private placement and
investor relations activities.
Oil and gas production expenses (lease operating and production tax expense
combined) for the year ended March 31, 1997 and 1996 were $110,050 and $90,948,
respectively, a $19,102 (21%) increase. The increase in production expense
resulted primarily from higher costs associated with the Company's gas wells in
Southeastern Colorado.
Unsuccessful exploration and abandonment costs increased from $198,255 last year
to $236,141 in the latest fiscal year. Geologic, geophysical and delay rentals
increased from $157,706 last year to $316,612 in the latest fiscal year. The
$158,906 (101%) increase in geologic, geophysical and delay rentals expense is
due to the Company's expanded exploration program. The Company follows the
successful efforts method of accounting which requires it to charge the cost of
exploratory dry holes and leasehold abandonment costs to operations in the
period incurred. Furthermore, all geological and geophysical costs and delay
rentals are expensed immediately when incurred, regardless of whether they
result in a commercially successful discovery of hydrocarbons. The Company was
engaged in exploration activities during fiscal 1997 involving large up-front
14
<PAGE>
geologic and geophysical costs, such as the California Merlin Prospect 3-D
seismic survey ($275,814 net to the Company's interest), which resulted in a
significant charge to operations in fiscal 1997.
Impairment of oil and gas properties of $222,499 resulted from the writedown of
costs associated with the Company's Michigan and Colorado properties.
Management has determined that the net book value associated with the properties
as of March 31, 1997 exceeds the realizable value of those properties.
Realizable value was determined by using an expected sales price in the case of
the Colorado properties where market value is determinable. Realizable value
was determined by using future estimated net cash flows (discounted to present
value using a 10% factor) in the case of the Michigan properties where market
value is not readily determinable.
SUBSEQUENT EVENTS
Subsequent to March 31, 1997 the Company drilled two exploratory wells on its
acreage in California. One well has been completed and will be placed on
production in July. The Company's estimated cost for its 40% working interest
in the two wells is $232,000. In addition, the Company is final negotiations to
acquire an interest in a pipeline, a producing well and undeveloped acreage at a
net cost to the Company of $86,000. The Company is tentatively planning to
drill two additional wells on its acreage in California. Two additional wells
are planned for drilling in 1997, one in Wyoming and one in Illinois. 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. Management does not believe that it is currently
feasible to raise additional capital through equity or debt financing and is
pursuing a strategy of selling non-strategic assets and reducing its working
interest participation in planned wells. If the planned drilling activity is
not successful, then the Company will have to take further steps to reduce
general and administrative expenses.
INFLATION
In recent years inflation has not had a significant impact on the Company's
operations or financial condition. However, during the current fiscal year 1998,
the company has experienced difficulty in securing drilling rigs, drill stem
testers and other field services in connection with drilling its wells.
Although it is not possible to accurately predict whether such shortages will
continue in future periods, they are likely to put upward pressure on costs
incurred to explore for, acquire, drill, complete and operate oil and gas
properties and the unavailability of drilling and related services may impose
delays in the Company's planned drilling activities.
INCOME TAXES
Sharon Energy Ltd. and Sharon Resources, Inc., file separate income tax returns
in Canada and the United States, respectively.
The fiscal 1997 benefit for income taxes of $58,000 relates entirely to U.S.
book loss which is classified as deferred. The deferred portion of the benefit
arises from timing differences in the recognition of revenue and expense items
for tax and financial purposes.
As of March 31, 1997, Sharon Energy Ltd. had a tax loss carry-forward of
approximately $103,000, available to offset taxable income in future years.
This expires in the years ended 1998 to 2004 for Sharon Energy Ltd. Sharon
Resources, Inc. had a tax loss carry-forward of $1,168,000 as of March 31, 1997
which will expire in the year 2011.
Sharon Resources, Inc. also has a carryover for statutory depletion of
approximately $468,000 and $31,000 for the general business credit for which no
benefit has been recognized.
15
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX PAGE
- ----- ----
Auditors' Report......................................................... 17
Consolidated Balance Sheets ............................................. 18
Consolidated Statements of Operations.................................... 20
Consolidated Statements of Shareholders' Equity.......................... 21
Consolidated Statements of Cash Flows.................................... 22
Notes to Consolidated Financial Statements............................... 24
Unaudited Supplementary Petroleum and Natural Gas Reserve Information.... 35
16
<PAGE>
AUDITORS' REPORT
To the Shareholders of Sharon Energy Ltd.:
We have audited the consolidated balance sheets of Sharon Energy Ltd. as at
March 31, 1997 and 1996 and the consolidated statements of operations,
shareholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at March 31, 1997
and 1996 and the results of its operations and its cash flows for the years then
ended in accordance with generally accepted accounting principles. As required
by the British Columbia Company Act, we report that, in our opinion, these
principles have been applied on a consistent basis.
Calgary, Alberta, ARTHUR ANDERSEN & CO.
June 17, 1997. Chartered Accountants
17
<PAGE>
Page 1 of 2
SHARON ENERGY LTD.
CONSOLIDATED BALANCE SHEETS
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
March 31,
------------------------
ASSETS 1997 1996
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 341,464 $ 379,133
Short-term investments - 53,050
Accounts receivable-
Oil and gas sales 51,542 68,948
Joint interest billing 38,926 13,044
Other 139,125 42,852
Prepaid expenses 8,873 8,873
---------- ----------
Total current assets 579,930 565,900
---------- ----------
OIL AND GAS PROPERTIES, using the successful efforts
method of accounting, at cost (Notes 2 and 3) 583,378 793,135
Less- Accumulated depreciation, depletion, amortization
and impairments (192,336) (92,336)
---------- ----------
391,042 700,799
---------- ----------
FURNITURE, FIXTURES AND EQUIPMENT, at cost, less
accumulated depreciation of $187,653 and $173,296, respectively 17,041 25,765
---------- ----------
$ 988,013 $1,292,464
---------- ----------
---------- ----------
</TABLE>
APPROVED ON BEHALF OF THE BOARD:
/s/ Jack S. Steinhauser , Director /s/ David L. Bennington , Director
- --------------------------- ----------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE>
Page 2 of 2
SHARON ENERGY LTD.
CONSOLIDATED BALANCE SHEETS
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
March 31,
------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 86,332 $ 103,218
Advances from joint ventures 30,379 54,850
Production and severance taxes payable 10,846 13,682
---------- ----------
Total current liabilities 127,557 171,750
---------- ----------
DEFERRED INCOME TAXES (Notes 2, 6 and 8) - 58,000
---------- ----------
DEFERRED RENT (Note 7) 46,747 53,903
---------- ----------
SHAREHOLDERS' EQUITY:
Preferred shares, no par value; 25,000,000 shares authorized,
none outstanding - -
Common shares, no par value; 100,000,000 shares authorized,
5,863,800 and 3,514,800 shares outstanding, respectively 1,692,725 1,326,802
Warrants outstanding 341,880 -
Retained deficit (1,183,604) (268,168)
Treasury shares; 37,200 and 49,700 shares, respectively (at cost) (37,292) (49,823)
---------- ----------
Total shareholders' equity 813,709 1,008,811
---------- ----------
$ 988,013 $1,292,464
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE>
SHARON ENERGY LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
Year Ended March 31,
---------------------------
1997 1996
<S> <C> <C>
REVENUES:
Oil and gas sales $ 272,859 $ 211,729
Sales of oil and gas properties 342,693 21,864
Interest income 7,507 46,894
----------- -----------
623,059 280,487
----------- -----------
COSTS AND EXPENSES:
Lease operating 91,625 82,611
Production and severance taxes 18,425 8,337
Cost of properties sold 79,467 -
General and administrative 509,807 448,099
Depreciation, depletion and amortization 114,357 72,534
Geological and geophysical and delay rentals 316,612 157,706
Unsuccessful exploration and abandonments 236,141 198,255
Impairment of oil and gas properties 222,499 -
Interest 488 3,035
----------- -----------
1,589,421 970,577
----------- -----------
LOSS BEFORE INCOME TAXES (966,362) (690,090)
INCOME TAX BENEFIT (58,000) (94,692)
----------- -----------
NET LOSS $ (908,362) $ (595,398)
----------- -----------
----------- -----------
NET LOSS PER SHARE (Note 2):
Basic $(.22) $(.18)
---- ----
---- ----
Fully diluted N/A N/A
---- ----
---- ----
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING:
Basic 4,222,595 3,350,851
----------- -----------
----------- -----------
Fully diluted 4,834,121 3,467,091
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
20
<PAGE>
SHARON ENERGY LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1996 AND 1997
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
Common Shares Retained Treasury Shares
--------------------------- Warrants Earnings ---------------
Shares Amount Outstanding (Deficit) Shares Amount
------------ ------------ ------------ ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, March 31, 1995 3,326,800 $1,292,022 - $ 327,230 49,700 $ (49,823)
Exercise of stock options 188,000 34,780 - - - -
Net loss - - - (595,398) - -
------------ ------------ --------- ----------- ---------- -------------
BALANCES, March 31, 1996 3,514,800 1,326,802 - (268,168) 49,700 (49,823)
Exercise of stock options 199,000 36,915 - - - -
Issuance of treasury shares - - - (7,074) (12,500) 12,531
Sale of shares and warrants (Note 4) 2,150,000 329,008 341,880 - - -
Net loss - - - (908,362) - -
------------ ------------ --------- ----------- ---------- -------------
BALANCES, March 31, 1997 5,863,800 $1,692,725 $ 341,880 $ (1,183,604) 37,200 $(37,292)
------------ ------------ --------- ----------- ---------- -------------
------------ ------------ --------- ----------- ---------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
SHARON ENERGY LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------------
1997 1996
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(908,362) $(595,398)
Noncash expenses and revenues included in net loss:
Depreciation, depletion and amortization 114,357 72,534
Impairment of oil and gas properties 222,499 -
Write-off of lease costs 202,907 8,040
Deferred income taxes (58,000) (33,000)
Gain on sales of oil and gas properties (263,226) (21,864)
Increase in accounts receivable (104,749) (49,345)
Decrease in accounts payable (16,886) (73,558)
(Decrease) increase in advances from joint ventures (24,471) 38,276
Decrease in production and severance taxes payable (2,836) (6,823)
Decrease in deferred rent (7,156) (1,808)
---------- ---------
Net cash used in operating activities (845,923) (662,946)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 36,915 34,780
Proceeds from sale of shares and warrants, net 670,888 -
---------- ---------
Net cash provided by financing activities 707,803 34,780
---------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
22
<PAGE>
SHARON ENERGY LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
Year Ended March 31,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Oil and gas property expenditures $(289,659) $(342,652)
Proceeds from sales of oil and gas properties 342,693 81,625
Acquisition of furniture, fixtures and equipment (5,633) (839)
Sale of short-term investments, net 53,050 545,721
--------- ---------
Net cash provided by investing activities 100,451 283,855
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (37,669) (344,311)
CASH AND CASH EQUIVALENTS, beginning of year 379,133 723,444
--------- ---------
CASH AND CASH EQUIVALENTS, end of year $ 341,464 $ 379,133
--------- ---------
--------- ---------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for-
Income taxes $ - $ 20,500
--------- ---------
--------- ---------
Interest $ 488 $ 3,035
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
23
<PAGE>
SHARON ENERGY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars unless indicated otherwise)
(1) ORGANIZATION AND OPERATIONS
THE COMPANY
Sharon Energy Ltd. (the "Company") was incorporated under the laws of the
Province of British Columbia, Canada on February 15, 1980, and is engaged
primarily in oil and gas exploration, development and production in the
United States through its wholly owned subsidiary, Sharon Resources, Inc.
OPERATIONS
Exploration drilling is scheduled during fiscal 1998 on the Company's
California acreage. It is anticipated that these exploration activities
together with others that may be entered into will impose financial
requirements which will exceed the existing working capital of the Company.
Management is evaluating selling producing and non-producing leaseholds and
reducing its working interest percentage in proposed exploratory wells to
finance its continued participation in the wells. In the event these efforts
are unsuccessful, the Company will be compelled to reduce the scope of its
business activities and take further steps to reduce general and
administrative expenses.
(2) ACCOUNTING POLICIES
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 GAAP in the United States. Sharon Energy Ltd. would
have to account for income taxes under the provisions of Statement of
Financial
24
<PAGE>
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes,"
which is not in accordance with Canadian GAAP. SFAS 109 requires the
liability method of accounting for income taxes whereas Canadian GAAP
requires the deferral method. Additionally, the limitation of capitalized
costs, including consideration for site restoration costs, under Canadian
GAAP for ceiling limitations differs from U.S. GAAP. This ceiling test is
similar to the provisions of Statement of Financial Accounting Standards No.
121 ("SFAS 121"), "Accounting For the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," issued in the United States. SFAS 121
requires a company to examine its carrying value of proved properties
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. Generally, the basis for making such assessments is
based on future cash flow projections (see Note 8).
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Sharon Energy
Ltd. and Sharon Resources, Inc., after elimination of all significant
intercompany accounts and transactions. Because virtually all transactions
are in United States dollars, the consolidated financial statements have been
prepared in United States dollars.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions. These estimates and assumptions affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the consolidated financial statements,
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
25
<PAGE>
OIL AND GAS PROPERTIES
The successful efforts method of accounting is followed for oil and gas
producing activities. Acquisition costs as well as the costs of productive
wells and developmental dry holes are capitalized when incurred. The costs
of exploratory wells are initially capitalized pending the determination as
to whether they have successfully added proved reserves. Unsuccessful
exploratory well costs are ultimately charged to operations. Acquisition
costs of unproved oil and gas properties are periodically evaluated for
impairment in value on a prospect-by-prospect basis and are charged to
operations during the period of impairment. All other exploration costs,
including geological and geophysical costs and delay rentals, are charged to
operations when incurred.
Depreciation, depletion and amortization of the capitalized costs of proved
properties is provided on a well-by-well basis by the unit-of-production
method based upon estimates of proved oil and gas reserves.
The ceiling limitation of net book value of proved oil and gas properties is
limited to management's estimate of future net revenues less estimated
general and administrative costs, interest expense and income taxes, all on
an undiscounted basis. Additionally, upon the expected sale of proved
properties, the remaining net capitalized value is impaired if the expected
sales price is less than net book value.
JOINT VENTURES
Substantially all exploration and production activities are conducted jointly
with others and, accordingly, the accounts reflect only the Company's
proportionate interest in such activities.
The Company is reimbursed for certain overhead costs incurred in connection
with the joint ventures. These reimbursements amounted to approximately
$19,000 and $29,000 during fiscal
26
<PAGE>
1997 and 1996, respectively. These amounts were recorded as a reduction of
general and administrative expense.
REVENUE RECOGNITION
Revenue is recognized as oil and gas production and delivery occurs.
FURNITURE, FIXTURES AND EQUIPMENT
Depreciation is provided on furniture, fixtures and equipment using the
straight-line method over estimated service lives which range from five to
eight years.
INCOME TAXES
The deferral method of tax allocation accounting is followed under which the
income tax benefit is based on the results of operations reported in the
accounts. The difference between the income tax benefit and taxes currently
payable is reflected as "deferred income taxes".
NET LOSS PER SHARE
Basic net loss per share has been computed by dividing net loss by the
weighted average number of shares outstanding during the respective years.
In fiscal 1997 and 1996, no disclosure was made of fully dilutive loss per
share as the effects of outstanding stock options and warrants were
antidilutive.
CASH EQUIVALENTS
For purposes of the Statements of Cash Flows, cash and cash equivalents
include cash on hand, amounts held in banks and highly liquid investments
purchased with an original maturity of three months or less.
(3) SUMMARY OF OIL AND GAS OPERATIONS
Information related to oil and gas operations is summarized as follows:
27
<PAGE>
March 31,
-----------------------
1997 1996
--------- --------
Capitalized costs-
Proved properties $ 473,178 $644,926
Unproved properties 110,200 148,209
Less- Accumulated depreciation, depletion,
amortization and impairments (192,336) (92,336)
--------- ---------
$ 391,042 $700,799
--------- ---------
--------- ---------
Costs incurred in oil and gas producing activities are as follows:
Year Ended March 31
-----------------------
1997 1996
--------- ---------
Property acquisition $ 90,095 $ 54,733
--------- ---------
--------- ---------
Exploration $ 680,372 $ 519,987
--------- ---------
--------- ---------
Development $ 77,401 $ 123,893
--------- ---------
--------- ---------
All oil and gas properties are located in the United States. Oil and gas
sales to three purchasers accounted for approximately 64%, 22% and 13% of
total sales during the year ended March 31, 1997. Sales to three purchasers
accounted for approximately 54%, 26% and 14% of total sales during the year
ended March 31, 1996.
28
<PAGE>
(4) PRIVATE PLACEMENT
During fiscal year 1997, the Company issued 2,000,000 equity units at CDN
$0.50 through a private placement. Each unit entitled the purchaser to one
share of common stock and one warrant to purchase common stock at CDN $0.60.
For accounting purposes, the warrants were valued using the Black-Scholes
Model. The following table summarizes the private placement transactions and
warrants outstanding as of March 31, 1997:
<TABLE>
<CAPTION>
Common Shares Warrants Outstanding Exercise
------------------------ ---------------------------------------- Price in
Shares Amount Units Amount Expiration Canadian $
--------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1. Tranch one 600,000 $ 136,447 600,000 $ 85,553 12/10/97 $0.60
2. Tranch two 1,400,000 318,375 1,400,000 199,625 2/12/98 0.60
3. Shares and warrants
issued as commission 150,000 (56,702) 350,000 56,702 2/12/98 0.50
4) Direct offering expenses - (69,112) - -
--------- --------- --------- --------
2,150,000 $ 329,008 2,350,000 $341,880
</TABLE>
(5) STOCK OPTIONS
Under the Employee Stock Incentive Plan (the "Plan") directors, officers, key
employees and consultants of the Company are entitled to receive incentive
stock options. The Plan is administered by the Board of Directors. Options
may be granted under the Plan for common shares up to 10% of the total
outstanding shares at the time of grant. The share option price may not be
less than 100% of the average trading price for ten trading days prior to the
date of grant. Options granted pursuant to the Plan must be exercised within
five years following the date of grant.
29
<PAGE>
The following table summarizes the changes in the number of shares reserved for
the exercise of stock options (per share prices are in Canadian dollars):
Year Ended March 31
--------------------
1997 1996
-------- --------
BALANCE, beginning of year 308,000 300,000
Canceled - (112,000)
Granted 470,000 308,000
Exercised ($0.25 per share) (199,000) (188,000)
-------- --------
BALANCE, end of year 579,000 308,000
-------- --------
-------- --------
The options are exercisable as follows at March 31, 1997:
Price
(Canadian
Shares Dollars) Expiration Date
-------- ---------- ---------------
84,000 $0.25 December 5, 2000
25,000 $0.29 December 5, 2000
279,000 $0.69 January 7, 2002
191,000 $0.90 February 14, 2002
-------
579,000
-------
-------
(6) INCOME TAXES
Sharon Energy Ltd. and Sharon Resources, Inc., file separate income tax returns
in Canada and the United States, respectively. The benefit for income taxes
relates entirely to U. S. book loss and is comprised of the following:
Year Ended March 31,
--------------------
1997 1996
--------- ---------
Current $ - $(61,692)
Deferred (58,000) (33,000)
-------- --------
$(58,000) $(94,692)
-------- --------
-------- --------
30
<PAGE>
The income tax benefit for income taxes in the Consolidated Statements of
Operations varies from the income tax benefit for income taxes calculated at the
Canadian statutory rate. The following table reconciles the main differences:
Year Ended March 31,
------------------------
1997 1996
--------- ---------
Loss before income tax benefit $(966,362) $(690,090)
Statutory rate 44.3% 44.3%
---------- ---------
Expected tax benefit (428,098) (305,710)
Loss in parent company for which no tax
benefit is provided 11,174 2,679
Difference in tax rates on U.S. operations 96,937 70,456
U. S. loss carryforward for which no tax
benefit is provided 260,097 138,318
State taxes and other 1,890 (435)
---------- ---------
$ (58,000) $ (94,692)
---------- ---------
---------- ---------
The benefit for deferred income taxes arises from timing differences in the
recognition of revenue and expense items for tax and financial statement
purposes. The tax effects of these differences during fiscal 1997 and 1996 are
as follows:
Year Ended March 31,
------------------------
1997 1996
--------- --------
Exploration and development costs $(118,649) $(40,370)
Depreciable property, plant and equipment 60,649 7,370
--------- ---------
Deferred income tax benefit $ (58,000) $(33,000)
--------- --------
--------- --------
As of March 31, 1997, Sharon Energy Ltd. and Sharon Resources, Inc. had tax loss
carryforwards of approximately $103,000 and $1,168,000, respectively, available
to offset taxable income in future years. These expire in the years ended 1998
to 2004 for Sharon Energy Ltd. and 2011 for Sharon Resources, Inc. Sharon
Resources, Inc. also has a carryovers of approximately $468,000 for statutory
depletion and $31,000 for the general business credit, for which no benefit has
been recognized.
31
<PAGE>
(7) OTHER
RELATED PARTY TRANSACTIONS
Office space is sublet on a month to month basis to a company owned by an
officer and his family. The sublease provides for minimum annual rentals of
approximately $19,000.
During fiscal 1997 and 1996, a company owned by an officer and director and his
family entered into joint venture agreements with the Company on the same terms
offered or sold to others whereby it has a working interest in certain wells
drilled. These agreements cover future wells drilled within the same prospect.
The Company had a net payable of approximately $7,000 and $9,000 as of
March 31, 1997 and 1996, respectively, for these joint venture agreements.
RESTRICTIONS ON TAKEOVER BIDS
During fiscal 1988, the Board of Directors amended the Articles of the Company
to add the following restrictions regarding takeover bids: (a) any offer to
acquire 20% or more of the Company must be approved by at least 60% of the
Company's shareholders, and (b) any takeover offer to acquire the Company's
shares shall be offered on identical terms to all shareholders.
REMUNERATION OF MANAGEMENT
The aggregate remuneration paid or payable for the years ended March 31, 1997
and 1996, to directors and senior officers as defined in the British Columbia
Company Act, amounted to approximately $195,000 and $203,000, respectively.
LEASES
In January 1992, the Company moved to a new office location. The lease
agreement provides for an 84-month term expiring in December 1998. Monthly
rent payments
32
<PAGE>
under the lease agreement commenced in April 1992. The Company is
recognizing rent expense ratably over the term of the lease. Total minimum
future rental payments under this lease are as follows:
Fiscal 1998 $135,000
Fiscal 1999 109,000
--------
$244,000
During fiscal 1997 and 1996, rental expense was approximately $134,000 and
$108,000, respectively. These amounts were offset in part by sublease rental
income received during the years of approximately $79,000 and $75,000,
respectively.
INCENTIVE AWARD PLAN
The Company has an Incentive Award Plan whereby the Board of Directors can grant
incentive awards to eligible corporate officers and key employees. The total
amount of incentive awards to be granted may, at the discretion of the Board of
Directors, be up to 12% of the consolidated before-tax annual profit of the
Company. Incentive awards to eligible officers and key employees are solely at
the discretion of the Board of Directors, both as to selection of participants
and amount of individual awards, and shall be made on an annual basis to
eligible participants following the release of the final audited, fiscal yearend
financial statements. No incentive award grants were made during fiscal 1997
and 1996.
EMPLOYEE ROYALTY POOL
Overriding royalties for certain prospects are granted to certain officers and
key employees as discretionary incentive awards. The production from these
royalties are paid directly to the participants.
33
<PAGE>
(8) DIFFERENCES BETWEEN CANADIAN AND United States
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
LOSS PER SHARE
Net loss per common share in accordance with U.S. GAAP is as follows:
Year Ended March 31,
--------------------
1997 1996
----- -----
(expressed in U.S. dollars)
Primary $(.22) $(.18)
----- -----
Fully diluted N/A N/A
In calculating U.S. GAAP primary loss per share, no consideration was given to
stock options and warrants as their effects were anti-dilutive.
In February 1997, Statement of Financial Accounting Standards No. 128 ("SFAS
128"), "Earnings per Share," was issued in the United States, effective for
the Company in fiscal 1998. The adoption of SFAS 128 by the Company would
not have had a material impact on the loss per common share for fiscal 1997
or fiscal 1996.
The effects of SFAS 109 and SFAS 121 would not cause the consolidated financial
statements to differ materially from Canadian GAAP. However, under U.S. GAAP a
deferred tax asset of approximately $551,000 and $296,000 would exist and be
fully reserved for with a valuation allowance as it is more likely than not that
the deferred tax asset at March 31, 1997 and 1996, respectively, would not be
realizable. The net deferred tax asset would consist primarily of U.S. net
operating loss carryforward and carryover statutory depletion.
34
<PAGE>
SHARON ENERGY LTD.
UNAUDITED SUPPLEMENTARY
PETROLEUM AND NATURAL GAS RESERVE INFORMATION
The following supplementary information is presented in compliance with United
States Securities and Exchange Commission ("SEC") regulations and is not covered
by the report of the Company's independent auditors.
The information required to be disclosed for the fiscal years 1997 and 1996 in
accordance with FASB Statement No. 69, "Disclosures About Oil and Gas Producing
Activities," is discussed below and is further detailed in the following tables.
The reserve quantities and valuations for fiscal 1997 and 1996 are based upon
estimates by Norstar Petroleum, Inc. and Company management. Proved reserves
are the estimated quantities of petroleum and natural gas which are reasonably
certain of recovery in future years from known reservoirs under existing
operating conditions assuming current prices and costs.
Proved developed reserves are those that can be recovered through existing wells
with existing equipment and existing (either operating or tested) recovery
techniques. The Company's producing reserves include those expected to be
produced from existing completion intervals now open for production in existing
wells.
The Company wishes to emphasize that the estimates included in the following
tables are by their nature inexact and are subject to changing economic,
operating and contractual conditions.
35
<PAGE>
SHARON ENERGY LTD.
CHANGES IN QUANTITIES OF PROVED PETROLEUM AND NATURAL GAS RESERVES
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996 (Unaudited)
Oil Gas
PROVED RESERVES (Bbls) (Mcf's)
- ----------------------------------------- ------ ---------
Balance at March 31, 1995 11,911 1,183,657
Production (4,107) (126,823)
Extensions and discoveries 25,337 1,402,143
Revisions of previous estimates (3,070) (9,189)
------- ---------
Balance at March 31, 1996 30,071 2,449,788
Sale of reserves in place (17,272) -
Production (4,821) (103,251)
Extensions and discoveries 4,278 -
Revisions of previous estimates (7,506) (119,537)
------- ---------
Balance at March 31, 1997 4,750 2,227,000
------- ---------
------- ---------
Oil Gas
------- ---------
PROVED DEVELOPED RESERVES (Bbls) (Mcf's)
- ----------------------------------------- ------- ---------
March 31, 1995 11,911 1,183,657
------ ---------
March 31, 1996 30,071 1,047,645
------ ---------
March 31, 1997 4,750 822,039
------ ---------
Subsequent to yearend, the client incurred approximately $158,000 in
drilling and completion costs on a successful well on their California
acreage. This well has estimated proved reserved of 1,000,000 Mcf that have
not been included in the above table.
<PAGE>
SHARON ENERGY LTD.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED PETROLEUM AND NATURAL GAS RESERVES (Unaudited)
For purposes of the following disclosures, estimates were made of quantities
of proved reserves and the periods during which they are expected to be
produced. Future cash flows were computed by applying yearend prices to
estimated annual future production from proved oil and gas reserves. The
average yearend prices for oil were $19.30 and $19.20 per barrel at March 31,
1997 and 1996, respectively. The average yearend prices for gas were $1.24
and $1.35 per Mcf at March 31, 1997 and 1996, respectively. Future
development and production costs were computed by applying yearend costs to
be incurred in producing and further developing the proved reserves. Future
income tax expenses were computed by applying, generally, yearend statutory
tax rates (adjusted for permanent differences, tax credits and allowances) to
the estimated net future pre-tax cash flows. The discount was computed by
application of a 10% discount factor. The calculations assume the
continuation of existing economic, operating and contractual factor. The
calculations assume the continuation of existing economic, operating and
contractual conditions. However, such arbitrary assumptions have not proven
to be the case in the past. Other assumptions of equal validity could give
rise to substantially different results.
Year Ended March 31,
------------------------
1997 1996
--------- --------
(expressed in U.S. dollars)
Future cash inflows $ 2,844,000 $ 3,183,000
Future costs-
Production (1,296,000) (1,397,000)
Development (292,000) (293,000)
----------- -----------
Future net cash inflows before
income tax 1,256,000 1,493,000
Future income tax (273,000) (343,000)
----------- -----------
Future net cash flows 983,000 1,493,000
10% discount factor (400,000) (368,000)
----------- -----------
Standardized measure of discounted
future net cash flows $ 583,000 $ 782,000
----------- -----------
----------- -----------
37
<PAGE>
SHARON ENERGY LTD.
CHANGES IN THE STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH
FLOWS FROM PROVED PETROLEUM AND NATURAL GAS RESERVES (Unaudited)
QUANTITIES (Unaudited)
The following are the principal sources of changes in the standardized
measure of discounted future net cash flows:
Year Ended March 31,
------------------------
1997 1996
--------- --------
(expressed in U.S. dollars)
Standardized measure of discounted future
net cash flows--beginning of year $ 782,000 $ 347,000
Sales and transfers net of production costs (163,000) (121,000)
Net changes in sales and transfer prices,
net of production 129,000 363,000
Extensions and discoveries, net of future
costs 49,000 470,000
Sales of reserves in place (163,000) -
Revisions of quantity estimates (75,000) (19,000)
Accretion of discount 102,000 48,000
Income tax change 71,000 (97,000)
Changes in production rates and other (149,000) (209,000)
--------- ---------
Standardized measure of discounted future
net cash flows--end of year $ 583,000 $ 782,000
--------- ---------
--------- ---------
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Information concerning this item will be in the Company's 1997 Proxy
Statement, which is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
Information concerning this item will be in the Company's 1997 Proxy
Statement, which is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning this item will be in the Company's 1997 Proxy
Statement, which is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS CONDITION AND RESULTS
OF OPERATION
Information concerning this item will be in the Company's 1997 Proxy
Statement, which is incorporated herein by reference.
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
A) EXHIBITS
3 - Articles of Incorporation and By Laws (1)
3-a --"Companies Act" Memorandum of Sharon Energy Ltd. Dated
February 4, 1980 (1)
3-b - "Company Act" Altered Memorandum of Sharon Energy Ltd. whereby
the Articles of the Registrant be altered by changing the authorized
capital of the Company (1)
3-c - Special Resolution dated September 6, 1985 whereby the Articles of
the Registrant be altered by adding
thereto Part 24.1 - Directors Rights to Issue in One or More
Series and Part 24.2 - Winding up rights (1)
3-d - Special Resolution dated September 11, 1987 whereby the Articles of
the Registrant be altered by adding
thereto Part 25.1 and 25.2 - Restrictions on Takeover Bids (1)
4 -- Instruments defining the rights of security holders, including
indentures (1)
10-ii (A) #1 - Falcon Prospect Agreement dated September 1, 1994 between
the Registrant and Pearson Energy Corp. (1)
10-ii (A) #4 - Agreement to sublease Office Space between the Registrant
and Pearson Energy Corp. (1)
10-iii (A) #1 - Executive Compensation (1)
10-iii (A) #2 - Stock Options Plan (1)
10-iii (A) #3 - Incentive Award Plan (1)
10-iii (A) #4 - Employee Royalty Pool Plan (special resolution) dated
June 16, 1987 (1)
Subsidiaries of the Registrant (1)
28-i Form 8-K dated February 17, 1997 (2)
- ----------------
(1) Incorporated by reference to the Company's 1996 Form 10-KSB
(2) Incorporated by reference to the Company's Form 8-K dated
February 17, 1997
B) REPORTS ON FORM 8K
The Company filed a report on Form 8-K on February 17, 1997, pertaining to the
issuance of 1,700,000 unregistered securities pursuant to an exemption from
registration under Regulation S of the Securities Act of 1933. Each unit
consisted of one common voting share of the Company and one non-transferable
Class B Common Stock Warrant entitling the purchaser thereof to purchase one
additional common share of the Company at a price of Canadian $.60 per share to
be exercised any time after, and within one year of the February 12, 1997
closing date of the offering. The Company received Canadian $801,000 in net
proceeds from the offering. The Company issued 150,000 common shares as a
corporate finance fee and, for services rendered in connection with the
offering, an additional 350,000 common share purchase warrants (Class C
Warrants) which are exercisable within one year of February 12, 1997. The
Class C Warrants are exercisable at Canadian $.50 per share.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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 on the 27th day of June,
1997.
SHARON ENERGY LTD.
Date: June 27, 1997
By: /s/ J. Chris Steinhauser
----------------------------
J. Chris Steinhauser
Executive Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Jack S. Steinhauser Director, President, and 6/27/97
--------------------------- Chief Executive Officer
Jack S. Steinhauser
/s/ J. Chris Steinhauser Executive Vice President 6/27/97
--------------------------- and
J. Chris Steinhauser Principal Accounting Officer
/s/ David L. Bennington Director 6/27/97
---------------------------
David L. Bennington
/s/ R. Gary Kuster Director 6/27/97
---------------------------
R. Gary Kuster
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 341,464
<SECURITIES> 0
<RECEIVABLES> 229,593
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 579,930
<PP&E> 583,378
<DEPRECIATION> 192,336
<TOTAL-ASSETS> 988,013
<CURRENT-LIABILITIES> 127,557
<BONDS> 0
0
0
<COMMON> 1,692,725
<OTHER-SE> (879,016)
<TOTAL-LIABILITY-AND-EQUITY> 988,013
<SALES> 615,552
<TOTAL-REVENUES> 623,059
<CGS> 0
<TOTAL-COSTS> 303,874
<OTHER-EXPENSES> 1,285,059
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 488
<INCOME-PRETAX> (966,362)
<INCOME-TAX> (58,000)
<INCOME-CONTINUING> (908,362)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (908,362)
<EPS-PRIMARY> (.22)
<EPS-DILUTED> 0
</TABLE>
