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 September 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 September 30, 1997, there were 5,364,776 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
September 30
1997 December 31,
(Unaudited) 1996
Current assets
Cash $ 3,396 $ 1,084
Accounts receivable 94,934 69,217
Note Receivable-Texoil 43,500 31,000
Total current assets 141,830 101,301
Oil and gas properties, using full
cost accounting
Properties being amortized 3,975,475 3,894,172
Less accumulated depreciation, depletion,
amortization and impairment 1,554,581 1,535,833
Net oil and gas properties 2,420,894 2,358,339
Other assets
Other property and equipment, at cost,
less accumulated depreciation 581 4,133
Other 2,076 2,742
Total other assets 2,657 6,875
TOTAL ASSETS $2,565,381 $2,466,515
The Notes to financial statements are an integral part of this statement.
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30,
1997 December 31,
(Unaudited) 1996
Current liabilities
Accounts payable $ 190,720 $ 257,713
Due to stockholders - 22,627
Short-term notes payable 148,179 174,850
Total current liabilities 338,899 455,190
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 5,364,776 shares and
4,307,003, respectively 53,648 43,307
Additional paid-in capital 4,281,753 3,579,342
Retained deficits (2,108,918) (2,060,127)
Total stockholders' equity 2,226,483 2,011,325
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $2,565,382 $2,466,515
STATEMENTS OF OPERATIONS
Nine Months Ended Three Months Ended
Sept 30, (unaudited) Sept 30, (Unaudited)
1997 1996 1997 1996
Revenues
Oil and gas sales $ 91,910 $ 62,282 $ 59,325 $ 19,051
Total Revenues 91,910 62,282 59,325 19,051
Expenses
Production 54,954 58,943 37,996 21,601
Depreciation, depletion,
and amortization 18,748 53,341 14,471 15,138
Interest 9,275 22,093 5,479 8,721
General and administrative 146,844 214,498 85,838 132,129
Total expenses 229,422 348,875 143,584 175,789
Other Income
Dividend income 33,750 33,750 22,500 11,250
Income-debt restructuring 56,067 - 26,303 -
Interest income - - - -
Total other income 89,817 33,750 48,803 11,250
Loss before provision for income
taxes (48,794) (252,843) (35,455) (145,487)
Provision for income taxes - - - -
NET LOSS $ (48,794) $(252,843) $(35,455) $(145,487)
Primary earnings per
share $(0.010) $(0.049) $(0.007) $(0.037)
STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
Sept 30,
1997 1996
Cash flows from operating activities
Net income/(loss) $ (48,791) $ (252,843)
Adjustments to reconcile net loss to net
cash provided by operating activities
DD&A 18,748 53,341
Depreciation and amortization 4,949 5,186
(Increase) decrease in:
Accounts receivable-trade (38,218) (33,750)
Other assets (731) -
Increase (decrease) in:
Accounts payable and accrued
expenses 89,620 60,714
NET CASH PROVIDED BY OPERATING
ACTIVITIES (153,663) (167,352)
Cash flows from investing activities
Capital expenditures (81,303) (84,646)
NET CASH USED BY INVESTING
ACTIVITIES (81,303) (84,646)
Cash flows from financing activities
Short-term notes payable (26,671) 52,372
Long-term debt retired - -
Proceeds from issuance of common and
preferred stock 263,949 483,955
NET CASH PROVIDED BY INVESTING
ACTIVITIES 237,278 268,807
NET INCREASE IN CASH AND CASH
EQUIVALENTS 2,312 16,809
Cash and cash equivalents, at beginning
of period 1,084 3,198
CASH AND CASH EQUIVALENTS, END
OF PERIOD $ 3,396 $ 20,007
Cash (received) paid during the year for:
Interest $ 762 $ -
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 which was operating in the
Panhandle Field, north of Amarillo, Texas, through October 1997, and
continues to operate in eastern central Pennsylvania. The Company also
owns one gas well in Holmes County, Mississippi, which is temporarily
shut-in due to technical problems. Effective October 1, 1997, the Company
sold its producing properties on the Baker 39 lease in the Texas Panhandle
for $220,000 cash and granted an option to sell its leasehold interest in the
remaining approximate 13,500 net acres for approximately $540,000. The
Company received a $50,000 cash, non-refundable fee for this option. The
proceeds from the sale were used for general reduction of debt and, as a
result, the total short term debt disclosed on the unaudited balance sheet as
of September 30, 1997 has been substantially reduced as of the date of this
filing, November 15, 1997. There is no long-term debt outstanding.
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.
In March 1996, Empiric entered into an agreement with Westar Energy,
Inc. ("Westar") for an approximate 88 gas well infill drilling program in
Indiana and Westmoreland Counties, Pennsylvania. The wells may 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 of
Empiric's 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
may plan to raise working capital for some portion of the remaining 88
wells in the Westar program in the same or similar manner as described
above. The Company also has other plans to increase and strengthen its
financial growth and some have reached the discussion and preliminary
negotiation stage. However, no firm and binding agreements have been
reached with the exception of the acquisition described in the next
paragraph.
The Company has entered into a definitive agreement to acquire the
interests from a company in the related field of oil and gas development to
purchase an approximate 20% working interest (21% net revenue interest)
in two producing oil and gas wells in Zanola and Frio Counties, Texas, as
well as an approximate 20% net revenue interest in 4,979 leasehold acres
in Zanola and Frio Counties, Texas. This agreement is subject to the due
diligence of both parties and is scheduled to close December 15, 1997. The
total consideration for this transaction is $230,000.
FINANCIAL RESULTS FOR THIRD QUARTER OF 1997 - PERIOD
ENDED SEPTEMBER 30, 1997
Financial results of Empiric Energy, Inc. for the three month period
ended September 30, 1997, disclosed revenues of $59,225 and a net loss of
$35,455 as compared with revenues of $19,051 and a net loss of $145,487,
respectively, for the similar six month period ended September 30, 1996.
Minimal revenues from the Company's interest in the Westar gas properties
in Pennsylvania were also included in the financial results for the six month
period ended September 30, 1997. A comparison of the financial results
for the nine month period ended September 30, 1996 and 1997,
respectively, as follows:
Total
Period Revenues Profit/(Loss)
Nine months ended
Sept. 10, 1996 $62,282 $(252,843)
Nine months ended
Sept. 10, 1997 $91,210 $( 48,794)
FINANCIAL CONDITION DISCUSSION
The Company balance sheet condition and its equity to debt ratio
continues to show strength as a result of the debt reduction program
wherein creditors exchanged both long and short term debt for equity.
Long-term debt has been eliminated. At September 30, 1997, the equity to
debt ratio was 6.5 times as compared with 4.2 times one year ago on
September 30, 1996. Currently, the Company has no long-term debt.
Notwithstanding the improvement in equity to debt ratios of the balance
sheet, the Company has a deficit working capital of $197,069 at September
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. As stated above, some of the funds provided
from the sale of the Panhandle properties have been utilized for the
reduction of debt and the improvement of liquidity.
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. The Company has drafted
for consideration before formal release a Private Placement Offering
Memorandum involving the issuance of up to $325,000 Senior Notes
secured by 70% of the proceeds from the exercise of the purchase option
agreement for the sale of its remaining leasehold acreage in the Texas
Panhandle, as described above. These Senior Notes in the form of 13 Units
at $25,000 per Unit will bear interest at 8% per annum, payable quarterly
and each Unit of $25,000 principal note will have attached 10,000 shares
of the Common Stock of Empiric Energy, Inc., subject to Rule 144 and
other applicable restrictions. No minimums or maximums will be included
if this financing plan is activated. None of these notes have been issued
through the date of the filing of this Form 10-QSB.
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: November 17, 1997
EMPIRIC ENERGY, INC.
By:_____Clyde E. Skeen______________
Clyde E. Skeen
Chief Financial Officer
By:_____James J. Ling______________
James J. Ling
President
