SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
Commission file number 1-13162
EMPIRIC ENERGY, INC.
(Exact name of registrant as specified in its charter)
Texas 75-2455467
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
8201 Preston Road, Suite 580
Dallas, Texas 75225
(Address of principal executive offices) (Zip Code)
(214) 265-8392
(Registrant's telephone number, including area code)
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and 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 _____
As of June 30, 1997, there were 5,041,387 shares of the registrant's
stock, $.01 par value outstanding.
PART I
FINANCIAL INFORMATION
The financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. The financial statements reflect all
adjustments which are, in the opinion of management, necessary to fairly
present such information. Although the Company believes that the
disclosures are adequate to make the information presented not misleading,
certain information and footnote disclosure, including significant accounting
policies, normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. It is suggested that these
financial statements be read in conjunction with the financial statements and
the notes thereto included in the Company's latest annual report on Form
10-K, dated December 31, 1996.
BALANCE SHEETS
ASSETS
June 30
1997 December 31,
(Unaudited) 1996
Current assets
Cash $ 384 $ 1,084
Accounts receivable 105,073 69,217
Note Receivable-Texoil 31,000 31,000
Total current assets 136,457 101,301
Oil and gas properties, using full
cost accounting
Properties being amortized 3,947,181 3,894,172
Less accumulated depreciation, depletion,
amortization and impairment 1,548,279 1,535,833
Net oil and gas properties 2,398,902 2,358,339
Other assets
Other property and equipment, at cost,
less accumulated depreciation 1,590 4,133
Other 2,076 2,742
Total other assets 3,666 6,875
TOTAL ASSETS $2,539,025 $2,466,515
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30,
1997 December 31,
(Unaudited) 1996
Current liabilities
Accounts payable $ 229,228 $ 257,713
Due to stockholders 86,925 22,627
Short-term notes payable 35,000 174,850
Total current liabilities 351,153 455,190
Stockholders' equity
Preferred stock, $100 par value;
authorized 2,000,000 shares;
none outstanding at 3/31/97,
4,488 outstanding at 12/31/96 - 448,803
Common stock, $0.01 par value;
authorized 20,000,000 shares;
issued 5,041,387 shares and
4,307,003, respectively 50,399 43,307
Additional paid-in capital 4,183,893 3,579,342
Retained deficits (2,046,420) (2,060,127)
Total stockholders' equity 2,187,872 2,011,325
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $2,539,025 $2,466,515
STATEMENTS OF OPERATIONS
Six Months Ended Three Months Ended
June 30, (unaudited) June 30, (Unaudited)
1997 1996 1997 1996
Revenues
Oil and gas sales $ 64,496 $ 43,231 $ 32,611 $22,663
Total Revenues 64,496 43,231 32,611 22,663
Expenses
Production 23,914 37,142 6,956 22,598
Depreciation, depletion,
and amortization 12,446 38,203 8,169 12,882
Interest 5,479 15,372 1,683 7,350
General and administrative 101,649 82,369 40,443 57,558
Total expenses 143,489 173,086 57,251 100,388
Other Income
Dividend income 22,500 22,500 11,250 11,250
Income-debt restructuring 70,196 - 40,432 -
Interest income - - - -
Total other income 92,696 22,500 51,682 11,250
Loss before provision for income
taxes 13,704 (107,354) 27,043 (66,474)
Provision for income taxes - - - -
NET (LOSS)/PROFIT $(13,704) $(107,354) $27,043 $(66,474)
Primary earnings per
share $(0.003) $(0.025) $0.006 $(0.016)
STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
June 30,
1997 1996
Cash flows from operating activities
Net loss $ 13,707 $ (107,355)
Adjustments to reconcile net loss to net
cash provided by operating activities
DD&A 12,446 38,203
Depreciation and amortization 3,940 3,458
(Increase) decrease in:
Accounts receivable-trade (35,854) (22,500)
Other assets (731) 1
Increase (decrease) in:
Accounts payable and accrued
expenses 35,811 102,834
NET CASH PROVIDED BY OPERATING
ACTIVITIES 29,319 14,641
Cash flows from investing activities
Capital expenditures (53,009) (39,496)
NET CASH USED BY INVESTING
ACTIVITIES (53,009) (39,496)
Cash flows from financing activities
Short-term notes payable (139,850) 25,000
Long-term debt retired - -
Proceeds from issuance of common and
preferred stock 162,840 -
NET CASH PROVIDED BY INVESTING
ACTIVITIES 22,990 25,000
NET INCREASE IN CASH AND CASH
EQUIVALENTS (700) 145
Cash and cash equivalents, at beginning
of period 1,084 -
CASH AND CASH EQUIVALENTS, END
OF PERIOD $ 384 $ 145
Cash (received) paid during the year for:
Income taxes $ - $ -
NOTES TO FINANCIAL STATEMENTS
(1) See notes to financial statements included in the Company's 1996
Annual Report on Form 10-KSB.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
BACKGROUND-HISTORY
THE COMPANY FROM INCEPTION, SEPTEMBER 1992 TO PRESENT
The Company, founded in September 1992, is an independent oil and
gas exploration and production company operating in the Panhandle Field,
north of Amarillo, Texas, and in eastern central Pennsylvania. The
Company also owns one gas well in Holmes County, Mississippi, which is
temporarily shut-in due to technical problems. During 1992 and 1993, the
Company participated in a 20 well drilling program on leases in Moore and
Potter Counties, Texas, resulting in wells producing oil from the Red Cave
Sandstone Formation. As a result, the Company earned a 41.5 percent
working interest in approximately 26,755 gross acres covered by oil and
casinghead gas leases.
In October 1993, the Company acquired a 100 percent working interest
in approximately 7,000 gross acres on leases on the Brent Ranch in Moore
County, Texas. This lease was abandoned in 1995 after the drilling of
three wells which were determined to be non-commercial. In October
1994, the Company raised $2.5 million of equity before the costs of
issuance, through an underwriting and became publicly traded. This
financing, underwritten on a "best efforts" basis, was closed at the
minimum level, $2.5 million short of the $5.0 million originally sought and
indicated as needed by the Company's master strategic development plan.
The resultant shortage has continued to curtail and inhibit the Company's
ability to grow and sustain financial strength. Although extensive efforts
have been made to raise additional capital, they have been generally
unsuccessful.
After acquiring the initial properties in the Texas Panhandle area, the
Company continued its program of actively seeking the acquisition of
promising oil and gas properties directly or through the acquisition of
and/or business combinations with other energy companies. In brief
summary, these activities resulted in the following events:
In March 1995, the Company pursuant to an agreement with Texoil
Energy, Inc., a Canadian corporation, acquired 1,000,000 shares of the
Common stock of Texoil and $750,000 principal amount of 6% preferred
stock in exchange for one half of the Company's interest in 9,000 acres of
oil and casinghead gas leases in the Panhandle of Texas. Additional
consideration in the form of $128,250 cash and a Note for $121,250 was
also received by the Company in connection with this transaction.
The Company owns approximately 26 percent of Texoil's outstanding
common stock and 100 percent of the 6% Series A Preferred Stock. If the
6% Series A Preferred Stock were converted into Texoil common stock, the
Company would own approximately 38 percent of Texoil's outstanding
common stock. The Company has no plans to convert the Series A
Preferred Stock into the common stock of Texoil.
Although Texoil is currently inactive, it is expected that it may be
activated with assets and financing furnished by its general shareholders and
other institutional shareholders in Canada who are interested in refinancing
Texoil and creating a public market in Canada for Texoil. Texoil's
principal assets are comprised of its interest in leasehold acreage in the
Texas Panhandle acquired from Empiric.
Pursuant to an agreement dated December 21, 1995 with Lyon
Operating Co., Inc. ("Lyon"), the Company acquired from Lyon 72 percent
working interest in 1223.2 acres in Clay and Jack Counties, Texas, which
includes one producing oil well and eleven non-producing oil wells. As
consideration for the Lyon acquisition, the Company paid $30,000 cash, a
$35,000 Note and 20,000 shares of its Common Stock.
In February 1996, the Company agreed to acquire from Taureaux
Corporation ("Taureaux"), an affiliate of Lyon, a 20 percent net revenue
interest in 198.5 acres in Jack County, Texas, which contains two wells,
one of which has been drilled to the lower Ellenberger level at 8700 feet
and is awaiting completion and one of which produces minimal gas at a
shallower level.
The Company is considering the possibility of instituting a program to
repair and re-establish production on all the wells on the Lyon acreage.
The Company is also considering the economic feasibility of completing the
Lower Ellenberger level and continuing to investigate the gas production
possibilities of the two wells on the Taureaux acreage. These opportunities
may be explored further if adequate working capital becomes available.
WESTAR JOINT VENTURE - PENNSYLVANIA
In March 1996, Empiric entered into an agreement with Westar Energy,
Inc. ("Westar") for an approximate 100 well infill drilling program (later
reduced to 88 wells) in Indiana and Westmoreland Counties, Pennsylvania.
The wells will be drilled in segments, the size of which to be mutually
determined. Permits have already been obtained for approximately 50 infill
drilling locations. All locations selected to date are surrounded by
producing wells drilled some twenty years ago with initial potential ranging
from 750 to 3,000 Mcfpd. Empiric has contracted for up to a 75 percent
working interest (60 percent Net Revenue Interest). Westar will drill the
wells for a total fixed turnkey cost of $180,000 per well, of which
Empiric's 75 percent working interest will cost a fixed amount of $135,000
per completed well. Of this amount, $45,000 of Empiric's cost will be in
the form of 15,000 shares of Empiric Common Stock which will be
guaranteed by Empiric at a price of $3.00 per share, which will become
effective after the completion of the last well in each drilling segment.
Through this date, eight wells have been drilled (three segments of
3, 3 and 2 wells, respectively) with all eight producing wells confirmed.
The total proven reserves are estimated to be 6.6 Bcf of gas, approximately
2.5 Bcf to Empiric's Net Revenue Interest after all royalties, backins and
other outside carried interests.
The Company's financed its investment in the first eight wells by
attracting outside investors who will receive approximately 50 percent
working interest in the wells and 80 percent of the initial cash revenues
applicable to its interest (with Empiric receiving 20 percent) until the
investors receive up to 117 percent of their total investment. Thereafter,
all remaining revenues will be shared equally (50/50) with Empiric for the
life of the revenue stream. As an inducement to make the investment on
this basis, the investors also received approximately 80,000 shares of the
Common Stock of Empiric and a substantial portion of the intangible cost
related tax benefits.
If continuing gas production revenues merit such action, the Company
plans to raise working capital for the remaining 80 wells in the Westar
program so that Empiric will own 75 percent working interest. The
Company also has other plans to strengthen its financial growth and some
have reached the discussion and preliminary negotiation stage. However,
no firm and binding agreements have been reached.
FINANCIAL RESULTS FOR FIRST QUARTER OF 1997 - PERIOD
ENDED MARCH 31, 1997
Financial results of Empiric Energy, Inc. for the three month period
ended June 30, 1997, disclosed revenues of $32,611 and a net gain of
$27,043 as compared with revenues of $22,663 and a net loss of $6,645,
respectively, for the similar three month period ended March 31, 1996.
The small book profit for the current quarter ended June 30, 1997, reflected
a non-recurring gain of $40,322 caused by the Company's continuing debt
restructuring program. For the first time, minimal revenues from the
Company's interest in the Westar gas properties in Pennsylvania were also
included in the financial results for the three month period ended June 3,
1997.
FINANCIAL CONDITION DISCUSSION
The Company balance sheet condition and its equity to debt ratio
continues to improve due to the debt reduction and restructuring program
described above. At June 30, 1997, the equity to debt ratio was 6.2 times
debt coverage as compared with 2.4 times one year ago on June 30, 1996.
Currently, the Company has no long-term debt.
Notwithstanding the improvement in the balance sheet, the Company
has a deficit working capital of $214,696 at June 30, 1997, improved from
a working capital deficit of $353,889 on December 31, 1996. The
Company needs an infusion of working capital to increase liquidity, reduce
debt and for the development of available properties and opportunities. It
is anticipated that funds provided from the expected sale of the Panhandle
properties will be utilized for these purposes as described below.
STRATEGY, BUSINESS PLANS AND NEED FOR
THE INFUSION OF CAPITAL
All of the Company's plans to strengthen its financial capability for
development and growth involve the need for the infusion of capital funds.
Sources of financing, involving the issuance of debt and equity securities
as well as acquisitions and business combinations with companies in the
related energy business, are being investigated. Similarly, sale of Company
acreage and production assets are being considered with the objective of
utilizing the proceeds to obtain improved financial returns. In this
connection, the Company has entered into a letter agreement with a Texas-
based energy firm to sell its principal working interest in its West Texas
Panhandle producing properties for $300,000 cash along with a two year
option to purchase a working interest in 13,500 leasehold acres for
approximately $550,000. This agreement is subject to the normal due
diligence by both parties and is anticipated to be closed before the end of
the third calendar quarter ended September 1997.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Form 8K, reporting the proposed sale of the Texas Panhandle
properties, was filed on June 25, 1997.
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Date: August 15, 1997
EMPIRIC ENERGY, INC.
By:_____Clyde E. Skeen______________
Clyde E. Skeen
Chief Financial Officer
By:_____James J. Ling______________
James J. Ling
President
