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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, 1998
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 August 1, 1998, the Registrant had 9,880,800 shares of Common Stock, no
par value, outstanding.
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<PAGE>
PART I
FINANCIAL INFORMATION
SHARON ENERGY LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited - Expressed in U.S. dollars)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1998 1998
ASSETS ------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 58,264 $ 78,525
Accounts receivable 279,470 34,240
Prepaid drilling costs - 358,299
Prepaid expenses 29,938 8,873
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Total current assets 367,672 479,937
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OIL AND GAS PROPERTIES
Successful efforts method of accounting,
at cost 197,288 72,857
Less--accumulated depreciation, depletion
and amortization (4,330) (1,330)
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192,958 71,527
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FURNITURE, FIXTURES AND EQUIPMENT
at cost less accumulated depreciation 6,159 5,328
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566,789 $556,792
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $224,636 $ 49,310
Taxes payable 8,583 8,779
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Total current liabilities $233,219 58,089
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Deferred rent 22,232 29,211
SHAREHOLDERS' EQUITY
Preferred shares, no par value;
25,000,000 shares authorized
Common shares, no par value;
100,000,000 shares authorized;
9,880,800 and 9,563,800 shares
issued and outstanding at
At June 30 and March 31, 1998, respectively 2,406,361 2,354,522
Less: treasury stock (37,200 shares at cost) (37,292) (37,292)
Warrants outstanding 129,616 129,616
Retained earnings (2,187,347) (1,977,354)
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Total shareholders' equity 311,338 469,492
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566,789 $556,792
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</TABLE>
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, 1997 AND 1996
(Unaudited-Expressed in U.S. dollars)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
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REVENUES 1998 1997
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<S> <C> <C>
Oil and gas sales $ 123,497 $ 22,725
Sales of oil and gas properties 2,589 230,000
Other 455 3,624
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126,541 256,349
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COSTS AND EXPENSES
Lease operating 8,164 14,723
Production taxes 1 1,457
General and administrative 88,852 127,453
Depreciation, depletion and amortization 4,477 20,530
Unsuccessful exploration, net 214,089 61,652
Geologic, geophysical and delay rental costs 20,951 13,200
Cost of properties sold - 245,175
Interest - 199
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336,534 484,389
Loss from operations (209,993) (228,040)
Income tax benefit 0 0
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Net loss $(209,993) $(228,040)
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Loss per common share ($.02) ($.04)
Weighted average number of
Common shares outstanding 9,736,557 5,863,800
</TABLE>
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)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
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CASH FROM OPERATING ACTIVITIES: 1998 1997
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<S> <C> <C>
Net loss $(209,993) ($228,040)
Noncash expenses and revenues included in net loss
Depreciation, depletion and amortization 4,476 20,530
Unsuccessful exploration, net 214,089 60,164
Cost of properties sold - 245,175
(Increase) in accounts receivable (245,230) (170,577)
Decrease in prepaid drilling costs 358,299 -
(Increase) in prepaid expenses (21,065) -
Increase (decrease) in accounts payable (28,764) 275,289
Increase (decrease) in advances from
industry participants - 167,462
(Decrease) in taxes payable (196) (2,263)
(Decrease) in deferred rent (6,979) (4,384)
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Net cash used for operating activities 64,637 363,356
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 51,839 -
Proceeds from note payable 204,090
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Net cash provided by financing activities 255,929 -
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CASH FLOWS FROM INVESTING ACTIVITIES:
Oil and gas producing activities (341,379) (246,803)
Proceeds from sale of properties 2,859 -
Acquisition of furniture, fixtures and equipment (2,307) 0
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Net cash used for investing activities (340,827) (246,803)
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NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (20,261) 116,553
CASH AND CASH EQUIVALENTS, beginning of period 78,525 341,464
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CASH AND CASH EQUIVALENTS, end of period $ 58,264 $458,017
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</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
PART I
(CONTINUED)
FINANCIAL INFORMATION
SHARON ENERGY LTD. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
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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, 1998 and March 31, 1998 of Sharon
Energy Ltd. and its subsidiary (the "Company") and the results of its
operations and its cash flows for the three month periods ended
June 30, 1998 and 1997. 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, 1998.
Note 2. The results of operations for the three months ended June 30, 1998 may
not necessarily be indicative of the results of operations that may be
incurred for the entire fiscal year.
Note 3. 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 and warrants. However, in the quarters
ended June 30, 1998 and 1997, no consideration was given as their
effects would be antidilutive or immaterial. Earnings per share,
basic and diluted, would not differ materially if reported on a pro
forma basis in conformance with Financial Accounting Standards No.
128 "Earnings Per Share."
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 under Statement of
Financial Accounting Standards ("SFAS") 109 and 121. The
provisions of SFAS 109 and 121 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, 1998. However, for U.S. GAAP purposes, the Company
would reflect a deferred tax 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, 1998. The net
deferred tax asset would consist primarily of carryover statutory
depletion and U.S. net operating loss carryforward.
<PAGE>
PART I
-CONTINUED-
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 $134,453 at June 30, 1998
compared to a surplus of $421,848 at March 31, 1998. The Company's working
capital decreased due to expenditures in connection with the Company's oil
and gas producing and exploration activities as more fully described below.
Exploration drilling is planned during fiscal 1999 on the Company's
prospects. Management anticipates that the Company's will participate in
exploratory wells in California, Colorado and Illinois. The Company's
participation in the wells will have to be funded from working capital, cash
flow, loans or additional equity financings, the availability of which cannot
be assured.
During the quarter ended June 30, 1998, the Company drilled one
exploratory well in its South Lakeside Prospect located in Louisiana. The
well was completed as a dry hole at an estimated cost of $176,000 net to the
Company's 7% working interest.
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 to fund overhead and 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 and gas price conditions, the Company's ability to
secure additional equity or debt funding, and other related economic factors.
RESULTS OF THREE MONTHS STATEMENT OF OPERATIONS
During the three months ended June 30, 1998, the Company experienced an
increase in oil and gas revenues as compared to the prior year period due to
the addition of two producing wells in the Merlin Prospect in California.
Oil and gas sales for the three months ended June 30, 1998 were
$123,497 compared to $22,725 for the three months ended June 30, 1997, a 443%
increase. Company net oil production totaled 0 bbls. in the latest three
months as compared to 501 bbls. during the prior year three month period, a
100% decrease. The decrease in oil production occurred due to the
disposition of all of the Company's oil producing properties. Gas production
increased from 6,505 mmbtu in the prior year period to 59,226 MMBtu in the
three months ended June 30, 1998, an 800% increase due to the addition of
producing wells as mentioned above. The average gas price received in the
latest period was $2.08 per MMBtu as compared to $1.93 per MMBtu in the prior
year period, an 8% increase.
During the three months ended June 30, 1997, the Company sold working
interests in three producing gas wells located in Colorado. Total cash
proceeds to be realized were $230,000. The gross proceeds from this
transaction are recorded as sales of oil and gas properties. The Company had
net remaining unamortized costs associated with the properties sold of
$245,175 which were recorded as cost of properties sold. The Company made
property dispositions totaling $2,589 during the latest quarter
<PAGE>
ended June 30, 1998.
General and administrative expenses for the three months ended June 30,
1998 and 1997 were $88,852 and $127,453, respectively, a $38,601 or 30%
decrease. The reasons for the decrease were cost cutting measures
implemented by management, primarily in personnel reductions.
Oil and gas production expenses (lease operating and production tax
expense combined) for the three months ended June 30, 1998 and 1997 were
$8,165 and $16,180, respectively. The primary reason for the decrease was
due to lower lifting costs associated with the recent new wells completed in
the Company's Merlin Prospect in California.
Unsuccessful exploration expense increased from $61,652 last year to
$214,089 in the current period due primarily to the costs associated with the
Company's unsuccessful Louisiana well. Geologic and geophysical costs and
delay rentals increased from $13,200 in the prior year period to $20,591 in
the latest three month period due to increased delay rental expense and
geologic expenditures.
COMPANY OUTLOOK
As noted above, the Company has taken steps to reduce its overhead
expenditures. Despite the cost reductions, continued operating losses are
anticipated. The Company follows the successful efforts method of accounting
which requires it to charge the cost of exploratory dry holes and leasehold
abandonments to operations in the period incurred. In addition, 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's continued heavy emphasis on
petroleum exploration will likely result in significant charges to current
and future operations.
Management intends to use the Company's existing working capital to
fund prospect acquisition, exploration, exploitation, development and Company
overhead requirements. The Company is evaluating additional prospects which
management considers prospective.
<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: August 7, 1998 By: /s/ Jack S. Steinhauser
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Jack S. Steinhauser
President, Chief Financial Officer
and Chief Accounting Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 58,264
<SECURITIES> 0
<RECEIVABLES> 279,470
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 367,672
<PP&E> 197,288
<DEPRECIATION> 4,330
<TOTAL-ASSETS> 566,789
<CURRENT-LIABILITIES> 233,219
<BONDS> 0
0
0
<COMMON> 2,406,361
<OTHER-SE> (2,095,023)
<TOTAL-LIABILITY-AND-EQUITY> 566,789
<SALES> 123,497
<TOTAL-REVENUES> 126,541
<CGS> 8,165
<TOTAL-COSTS> 336,534
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (209,993)
<INCOME-TAX> 0
<INCOME-CONTINUING> (209,993)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (209,993)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> 0
</TABLE>
