UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
Annual Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 [Fee Required]
For the fiscal year ended: December 31, 1996
Commission file number #1-13162
EMPIRIC ENERGY, INC.
(Name of small business issuer 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)
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange
on which registered
Common Stock ($.01 par value) Over The Counter
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form and no disclosure will be
contained, to the best of the 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. X
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
EMPIRIC ENERGY, INC.
By: _______________________________________
James J. Ling, President
By: _______________________________________
Clyde E. Skeen, Chief Financial Officer
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Empiric Energy, Inc.
Dallas, Texas
We have audited the accompanying balance sheets of Empiric Energy, Inc.
as of December 31, 1996, and 1995, and the related statements of
operations, changes in stockholders' equity, and cash flows for each of the
years in the three year the period ended December 31, 1996. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to
obtain reasonable assurance about 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. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Empiric Energy, Inc. at
December 31, 1996 and 1995, and the results of their operations and their
cash flows for each of the years in the three year period ended December
31, 1996 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. During the year ended
December 31, 1996, the Company incurred a net loss of $491,446,
including a ceiling test adjustment of $430,993. Future working capital
requirements are dependent on the Company's ability to restore and
maintain profitable operations, to restructure it's financing arrangements,
and to continue it's present short-term financing, or obtain alternative
financing as required. It is not possible to predict the outcome of future
operations or whether the necessary alternative financing may be arranged,
if needed. Those conditions raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
Certified Public Accountants April 14, 1997
Empiric Energy, Inc.
Balance Sheets
ASSETS
December 31,
1996 1995
Current assets
Cash $ 1,084 $ 3,198
Accounts receivable 69,217 -
Note receivable-Texoil (Note 3) 31,000 31,000
Total current assets $ 101,301 $ 34,198
Oil and gas properties, using full cost
accounting (Note 1 and 3)
Properties being amortized 3,894,172 3,601,294
Properties not being
amortized (Note 1) - 65,000
$3,894,172 $3,666,294
Less accumulated depreciation, depletion,
amortization and impairment 1,535,833 1,081,871
Net oil and gas properties $2,358,339 $2,584,423
Other assets
Other property and equipment, at cost,
less accumulated depreciation 4,133 8,267
Other 2,742 6,213
Total other assets 6,875 14,480
Total Assets $2,466,515 $2,633,101
EMPIRIC ENERGY, INC.
Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
1996 1995
Current liabilities
Accounts payable $ 257,713 $ 253,037
Due to stockholders 22,627 22,628
Notes payable (Note 4) 174,850 110,000
Total current liabilities $ 455,190 $ 385,665
Long-term debt
Senior Secured N/P (Note 4) - 267,520
- 267,520
Total liabilities $ 455,190 $ 653,185
Stockholders' equity
Preferred stock, $100, par value;
authorized 2,000,000 shares;
4,488 and none outstanding,
respectively 448,803 -
Common stock, $0.01 par value;
authorized 20,000,000 shares;
4,330,737 and 4,055,537 shares
outstanding, respectively 43,307 40,555
Additional paid-in capital 3,579,342 3,508,043
Retained deficits (2,060,127) (1,568,681)
Total stockholders' equity $ 2,011,325 $ 1,979,917
Total liabilities and stockholders'
equity $ 2,466,515 $ 2,633,102
EMPIRIC ENERGY, INC.
Statements of Operations
December 31,
1996 1995 1994
Revenues
Oil and gas sales $ 94,978 $ 85,282 $ 138,012
Total revenues 94,978 85,282 138,012
Expenses
Production 86,087 58,472 80,583
Depreciation, depletion,
and amortization 22,969 97,785 49,733
General and admin. 196,038 212,412 124,140
Interest (Note 1) 36,938 - 51,516
Full cost ceiling
adjustment (Note 1) 430,993 - 830,969
Total expenses $ 773,025 $ 368,669 $1,136,942
Other Income
Dividend income 45,000 33,750 -
Interest income 3,100 4,000 -
Other income 138,500 - -
Total other income $ 186,600 $ 37,750 -
Loss before provision
for income taxes (491,446) (245,636) (998,929)
Provision for income
taxes (Note 5) - - -
Net loss $ (491,446) $ (245,636) $ (998,929)
Primary earnings per
share (Note 1) $ (0.12) $ (0.06) $ (0.25)
<TABLE>
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
Total
Preferred Common Paid-In Retained Stkholders'
Shares Amount Shares Amount Capital Earnings Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at 12/31/93 - - 6,032,500 $ 60,325 $1,554,684 $(324,115) $1,290,894
Changes 1994:
Reverse common stock
split - - (3,016,200) (30,162) 30,162 - -
Conversion of notes - - 794,200 7,942 1,925,647 - 1,933,589
Net loss for year ended
December 31, 1994 - - - - - (998,929) (998,929)
Balance at December 31,
1994 - - 3,810,500 38,105 3,510,493 (1,323,044) 2,225,554
Changes 1995:
Stock issued in Texoil
transaction - - 225,000 2,250 (2,250) - -
Stock issued in Lyon
Operating transaction - - 20,000 200 (200) - -
Net loss for year ended
December 31, 1995 - - - - - (245,636) (245,636)
Balance at December 31,
1995 - - 4,055,500 40,555 3,508,043 (1,568,680) 1,979,918
Changes 1996:
Stock issued 4,488 $448,803 275,200 2,752 71,299 - 74,051
Net loss for the year ended
December 31, 1996 - - - - - (491,446) (491,446)
4,488 $448,803 4,330,700 $ 43,307 3,579,342 (2,060,126) 1,562,523
</TABLE>
EMPIRIC ENERGY, INC.
Statements of Cash Flows
December 31,
1996 1995 1994
Cash flows from operating activities
Net loss $(491,446) $(245,637) $(998,929)
Adjustments to reconcile net loss
to net cash provided by operating
activities
DD&A 22,969 97,785 38,317
Write-down as result of
ceiling test 430,993 - -
Depreciation and amortization 7,605 4,435 7,047
(Increase) decrease in:
Accounts receivable-trade (69,219) - 118,172
Prepaid expenses - - -
Other assets - 10,298 (9,602)
Increase (decrease) in:
Accounts payable and accrued
expenses 4,676 (51,809) (79,030)
Net cash provided by operating
activities (94,422) (184,927) (924,026)
Cash flows from investing activities
Loan made - (31,000) -
Capital expenditures (227,878) (410,949) 336,554
Net cash used by investing
activities (227,878) (441,949) 336,554
Cash flows from financing activities
Short-term notes payable 64,850 110,000 -
Proceeds from issuance of convertible
senior notes - 267,520 (1,384,991)
Retirement of senior notes (267,520) - -
Proceeds from issuance of common
stock 74,051 - 1,933,590
Proceeds from issuance of preferred
stock 448,803 - -
Proceeds from sale of oil and gas
properties - 250,000 -
Net cash provided by investing
activities 320,184 627,520 548,599
Net increase in cash and
cash equivalents (2,116) 644 (38,873)
Cash and cash equivalents
- at beginning of period 3,198 2,554 41,428
Cash and cash equivalents
- at end of period $ 1,082 $ 3,198 $ 2,555
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OIL AND GAS PROPERTIES
The Company follows the full cost method of accounting for oil and gas
properties. Under this method, all costs related to the acquisition,
exploration for and development of oil and natural gas reserves are
capitalized and accumulated in a single cost center representing the
Company's activities undertaken exclusively in the United States. Such costs
include lease acquisition cost, geological and geophysical expenditures,
lease rentals on undeveloped properties, costs of drilling both productive
and non-productive wells and general and administrative expenses directly
related to exploration and development activities. Proceeds received from
disposals are credited against accumulated costs except when the sale
represents a significant disposal of reserves in which case a gain or loss
is recognized. Abandonments of properties are accounted for as adjustments
of capitalized costs with no loss recognized.
The costs capitalized, including production equipment, are depreciated or
depleted on the unit-of-production method, based on proved oil and natural
gas reserves as determined by independent petroleum engineers. Oil and
natural gas reserves are converted to equivalent units based upon the
relative energy content which is six thousand cubic feet of natural gas to
one barrel of crude oil. Depreciation of office and other property is
computed generally using the straight-line method over the useful lives of
the assets.
The capitalized costs less accumulated depletion, depreciation and deferred
taxes are limited to an amount which is not greater than the estimated future
net revenue from proved reserves using period-end prices less estimated future
production-related general and administrative expenses, financing costs and
income taxes, plus the cost (net of impairments) of undeveloped properties.
CAPITALIZED INTEREST
The Company capitalized interest of $8,126 in 1995 and $29,577 in 1994,
respectively on expenditures made in connection with development projects
that were not subject to current amortization. Interest was capitalized only
for the period that activities were in progress to bring those projects to
their intended use.
OIL AND GAS PROPERTIES NOT SUBJECT TO DEPRECIATION, DEPLETION AND
AMORTIZATION
For oil and gas development activities in which a determination has not been
made about additional reserves that should be classified a proved or the well
or wells have been determined to be nonproductive the associated costs are not
included in the full cost pool for purposes of computing amortization. In 1995
those cost were $65,000.
CASH FLOWS PRESENTATION
For purposes of the Statement of Cash Flows cash equivalents include time
deposits, certificates of deposit and all liquid debt instruments with
original maturities of three months or less.
EARNINGS PER SHARE
Primary earnings per share amounts are computed based on the weighted average
number of shares actually outstanding plus the shares that would be outstanding
assuming conversion of the senior convertible notes payables which are
considered to be common stock equivalents. Net loss has been adjusted for
interest expense (net of tax) on the convertible debt. The number of shares
used in the computations were 4,162,733 in 1996, 3,933,019 in 1995 and
3,734,186 in 1994. Fully diluted earnings per share consisting of the
weighted average of common shares outstanding plus the fully converted
preferred stock are not presented because the effect would be anti-dilutive.
NOTE 2 - RELATED PARTY TRANSACTIONS
Hill Investors, Inc. ("Hill"), an affiliate of Mr. Ling, has entered into a
three year management consulting agreement with the Company whereby Hill
provides certain management consulting services, receiving therefor a monthly
fee of $7,500. In the event of the death or disability of Mr. Ling or a
reorganization of the Company occurs during the term of the agreement, the
agreement shall automatically terminate (in the case of Mr. Ling's death or
disability) or, in the case of a reorganization, the agreement may be
terminated at Mr. Ling's option. Upon any such termination for the foregoing
reasons such payments shall continue for a period of 36 months from the date
of such termination. Mr. Ling presently devotes the majority of his working
time and efforts to the business and affairs of the Company and expects to
continue doing so for the foreseeable future. Under the terms of the agreement
the Company is obligated to provide to Hill suitable office facilities and to
reimburse it for expenses incurred in connection with Hill's or Mr. Ling's
services to the Company including without limitation, the cost of providing
an automobile and health and life insurance for Mr. Ling. Pursuant to the
agreement, Hill is obligated to certain covenants of confidentiality and non-
competition and is entitled to receive the benefits of indemnification against
damages and cost of defense of litigation or claims resulting from certain
acts in the course of performance of its or Mr. Ling's management duties as
provided for in the Company's by-laws. Hill provided consulting services at
a cost of $90,000 in 1996, $60,000 in 1995, and $82,850 in 1994.
Contemporaneously with the formation of the Company in October, 1992, Hill was
issued 1,750,000 shares of the Company's common stock (the "Shares") in
consideration for Hill's: (i) assignment to the Company of its working interest
in the Smith Well in Holmes County, Mississippi; (ii) causing other
unaffiliated persons who owned substantially all of the remaining working
interest in the Smith Well to assign their interests in the well to the Company
in consideration for Hill's transfer to them of a total of 236,422 of the
Shares; and (iii) making available to the Company the opportunity to enter into
the farmout agreement which had been negotiated by Hill with Richmond
Petroleum, under which the Company subsequently earned its interest in the
Richmond acreage. Of the Shares assigned by Hill to owners of interests in the
Smith Well, 29,400 shares were transferred to Clyde Skeen Business Consultants,
Inc., the majority of the stock of which is owned by Clyde E. Skeen,
Secretary, Treasurer and a Director of the Company. Additionally, for services
rendered in the formation of the Company, Hill assigned to three persons a
total of 87,500 of the Shares, including 50,000 shares to Clyde Skeen Business
Consultants, Inc. Clyde Skeen Business Consultants, Inc. provided consulting
services at a cost of $21,000 in 1995, and $36,000 in 1994.
As a result of the Texoil transaction described in Note 3 below the Company
now owns approximately 23 percent of Texoil Energy Limited's common stock and
100 percent of the 6% preferred stock. If the 6% preferred stock were
converted into Texoil Energy Limited's common stock, Empiric would own
approximately 34 percent of Texoil's outstanding common stock. The Company has
no plans to convert the preferred stock into common stock. In addition, the
President of the Company is now a director of Texoil Energy Limited.
On December 31. 1995 the Company issued to two stockholders of the Company
$267,520, in senior secured notes payable bearing interest at 8% payable each
six months with the principal due in thirty-six months from that date in
exchange for accounts payable owing to the stockholders.
NOTE 3 - ACQUISITION AND SALE OF OIL AND GAS PROPERTIES
In 1992 the Company acquired undivided interests in a producing well located in
Mississippi. Current production from this well is being retained by the
operator of the well to offset costs it incurred in a major reworking program.
Upon receipt of full payment and satisfaction of this obligation, future
revenue will revert to Empiric Energy, Inc. This property was recorded at its
fair market value of $1.6 million. This value was based on the discounted value
of estimated reserves of the property less a provision for all claims and
encumbrances which may be assessed against the property as estimated by
management. The estimated reserves were determined by independent professional
engineers. In exchange for this property and other valuable assets, including
the opportunity to acquire the working interests in the Panhandle properties
and for obtaining the initial financing to form the company, 1.75 million
shares of stock and $125,000 in convertible senior notes were issued.
In 1993 the Company acquired an additional 28.5% undivided interest in property
in the Texas Panhandle. This additional interest was acquired for the
assumption of the debts of the former operator and included a substantial
amount of supplies. The amount of the debts assumed plus other expenditures
related to the transaction totaled approximately $450,000. Part of this
additional interest in the property was sold shortly thereafter for $450,000.
The supplies were used on the Company's projects in the Panhandle.
Pursuant to an agreement dated March 23, 1995, between the Company and Texoil
Energy, Ltd. (Texoil), a Canadian corporation, Texoil acquired one-half of the
Company's interest in approximately 9,300 acres of oil and casinghead gas
leases in Moore and Potter Counties, Texas, including the 7,000 acres on the
Brent Ranch, and 225,000 shares of the Company's Common Stock. In
consideration, the Company received $128,750 cash and a $121,250 note due in
August, 1995, 1,000,000 shares of Texoil Common stock and $750,000 principal
amount of 6% preferred stock, convertible into 750,000 shares of Texoil Common
Stock.
On December 21, 1995, the Company entered into an agreement with Lyon Operating
Co., Inc. for the purchase of an undivided 72% of the leasehold or working
interest in approximately 1,223 acres of land situated in Clay and Jack
Counties, Texas. For this interest the Company paid $30,000 cash, a promissory
note for $35,000 with interest at eight percent (8%) payable on or before March
21, 1996, and 20,000 shares of the Company's stock. The Company is currently in
default in payment of this note.
NOTE 4 - NOTES PAYABLE AND CURRENT PORTION OF LONG-TERM DEBT
Notes payable consists of:
1996 1995
Senior secured notes dated December
31, 1995 due December 31, 1998 with
interest at 8% $ - $ 267,520
Bank note due on demand with
interest at 12% 100,000 75,000
Lyon Operating Co., Inc. dated December
21, 1995 due March 21, 1996 35,000 35,000
Other notes payable,
due on demand 39,850 22,628
Total $ 205,195 $ 400,148
Less portion due within one year (205,195) (132,628)
Total long-term debt $ - $ 67,520
On December 31, 1995, the Company issued $267,520, in senior secured notes
payable bearing interest at 8%, payable each six (6) months. The full amount
of the principal was due thirty-six (36) months from that date. The notes were
issued to two stockholders of the Company. On October 1, 1996, these notes were
exchanged for the Company's preferred stock.
The Company is in default on the note due Lyon Operating Co.
NOTE 5 - INCOME TAXES
The company has available net operating loss carry forward to reduce future
taxable income and income taxes which will expire for financial and tax
purposes as follows:
Financial Tax
December 31, 2007 $ 37,661 $ 505,161
December 31, 2008 286,454 823,485
December 31, 2009 998,929 627,142
December 31, 2010 245,636 220,357
December 31, 2011 491,447 172,485
$2,450,736 $2,348,630
The Company believes that the tax benefit computed under FASB 109 would not
likely be realized and would be fully reserved.
NOTE 6- LEGAL PROCEEDINGS
The lessors of the Brent Ranch filed a lawsuit in the District Court of Moore
County, Texas, on July 19, 1995, against Empiric Energy, Inc. for damages and
termination of the Oil and Casinghead Gas Lease between the parties dated
October 7, 1993, as amended. Plaintiffs allege that the Company breached the
terms of the lease by: (i) failing to plug and abandon six wells on the lease
drilled by others; (ii) failing to pay liquidated damage payments by July 15,
1995, for four wells that were required to be drilled by June 22, 1995, but
were not drilled; (iii) breach of implied covenants and expressed covenants in
the lease to reasonably develop the lease; and, (iv) failing to make minimum
royalty payments due under the lease. Plaintiffs seek damages, termination of
the lease, court costs, attorney's fees, and interest.
Pursuant to a partial summary judgment proceeding in October 1995, the Court
determined that the Company was liable to the lessors for $200,000 for
liquidated damages, costs and attorney fees. The Company and the lessors
settled the matter in February 1996, upon the following terms: The Company
released all of its interest in the Brent Ranch leases, paid $25,000 in cash
and agreed to complete plugging and clean-up of the six inactive wells drilled
by others. The Company was released from its obligation to drill eight
additional wells on the Brent Ranch lease and had the right for 60 days to sell
the last well drilled to a third-party who has the gas rights and keep the sale
proceeds. These rights were subsequently sold for $10,000.
In some instances the Company has entered into installment payout arrangements
with certain creditors to retire the related indebtedness involved and in
some cases the Company has entered into agreed judgements with forbearance to
permit time for raising funds to satisfy such claims. In some of these cases
the Company has defaulted on such agreements.
NOTE 7- OIL AND GAS DATA
The following tables provide additional information about the Company's oil and
gas development and production activities.
CAPITALIZED COSTS
Following is a summary of costs incurred in oil and gas property acquisition and
development activities:
1996 1995 1994
Unproved properties:
Acquisitions $ - $130,000 $ 62,500
Developments 227,878 144,823 96,302
Proved Properties:
Acquisitions - - 348,683
Developments - - -
$227,878 $274,823 $507,485
Following is a summary of oil and gas producing activities for the year ended
December 31, 1996 and 1995: (excluding corporate overhead and financing costs)
1996 1995 1994
Oil and gas sales $ 94,978 $ 85,282 $ 138,012
Production costs (86,583) (58,472) (80,353)
Depreciation, depletion and
amortization (22,969) (97,785) (49,733)
$(14,574) $ (70,975) $ 7,696
Income tax expense - - -
Results of operations for
oil and gas producing
activities $(14,574) $ (70,975) $ 7,696
RESERVE INFORMATION (UNAUDITED)
The following estimates of proved and proved developed reserve quantities and
related standardized measure of discounted net cash flow are estimates only
by independent petroleum engineers, and do not purport to reflect realizable
values or fair market values of the Company's reserves. The Company emphasizes
that reserve estimates are inherently imprecise and that estimates of new
discoveries are more imprecise than those of producing oil and gas properties.
Accordingly, these estimates are expected to change as future information
becomes available. All of the Company's reserves are located in the United
States.
Proved reserves are estimated reserves of crude oil (including condensate and
natural gas liquids) and natural gas that geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions. Proved
developed reserves are those expected to be recovered through existing wells,
equipment, and operating methods.
The following table is a summary of the reserve quantity information (oil
reserves are stated in barrels and gas reserves are stated in thousand cubic
feet):
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
Oil Gas Oil Gas Oil Gas
(Bbl) (Mcf) (Bbl) (Mcf) (Bbl) (Mcf)
<S> <C> <C> <C> <C> <C> <C>
Balance Beginning of
the year 240,542 2,992460 278,675 3,082,079 363,231 3,308,548
Revisions of previous
estimates (113,780) (294,626) (21,876) (40,359) (83,082) (222,155)
Extensions and discoveries
Production (4,436) (274) (16,257) (49,260) (1,474) (4,314)
Balance At End of
the year 122,326 2,697,560 240,542 2,992,460 278,675 3,082,079
Proved Developed Reserves:
Balance at beginning
of year 98,736 2,636,097 117,682 2,678,680 170,698 2,830,875
Balance at end of
the year 99,667 2,640,616 98,736 2,636,097 117,682 2,678,860
</TABLE>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
(UNAUDITED)
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated
future production of proved oil and gas reserves, less estimated future
expenditures (based on year-end costs) to be incurred in developing and
producing the proved reserves, less estimated future income tax expenses
(based on year-end statutory tax rates, with consideration of future tax
rates alreadylegislated) to be incurred on pre-tax net cash flows less tax
basis of properties and available credits, and assuming continuation of
existing economic conditions. The estimated future net cash flows are then
discounted using a rate of 10 percent a year to reflect the estimated timing
of the future cash flows.
1996 1995 1994
Future cash inflows $ 4,656,234 $ 6,799,704 $ 6,659,528
Future production and
development costs (998,984) (2,467,943) (2,598,407)
Future income tax expense - - -
Future net cash flows 3,657,250 4,331,761 4,061,121
10% Annual discount for est.
timing of cash flows (1,295,911) (1,592,764) (1,684,169)
Standardized measure of
discounted future net cash
flows $ 2,361,339 $ 2,738,997 $ 2,376,952
NOTE 8 REVERSE STOCK SPLIT
On March 24, 1994, the Board of Directors authorized a 1-for-2 reverse stock
split of common stock to stockholders of record on March 24, 1994. Per-share
amounts in the accompanying financial statements have been adjusted for the
split.
NOTE 9 UNAUDITED QUARTERLY INFORMATION
The following table presents unaudited summary information on a quarterly basis
for 1996 and 1995:
March 31 June 30 Sept. 30 Dec. 31
1996
Revenues $ 31,817 $ 33,913 $ 30,301 $ 32,697
Expenses $ 74,361 $100,389 $ 175,790 $ 423,487
Net Income (42,545) $(66,475) $(145,488) $(237,940)
Net income per share $(0.01) $(0.01) $(0.04) $(0.06)
March 31 June 30 Sept. 30 Dec. 31
1995
Revenues $ 33,048 $ 24,417 $ 19,810 $ 8,007
Expenses $ 47,040 $115,525 $101,916 $104,189
Net Income $(13,991) $(91,108) $(82,106) $(58,431)
Net income per share $(0.01) $(0.02) $(0.02) $.(0.01)
SHAREHOLDER
REPORT
APRIL 15, 1997
Dear Shareholder:
The fiscal year ended December 31, 1996 reflects a cash loss of $37,484 after
eliminating the non-cash accounting loss of $430,993, attributed to special
accounting procedures as outlined in Note 1 on Page F-8 of the Notes to
Financial Statements. This represents a cash loss of about 9/10ths of a cent
per share (.009 cents) as compared with a cash loss per share during 1995 of
about 3 1/3 cents per share (.0339 cents). The total book loss for calendar
years 1995 and 1996 was $245,636 and $491,446, respectively.
The Management would like to point out certain items and events that are not
reflected in the Financial Statements or Notes related to same.
MISSISSIPPI OIL & GAS RESERVES
The Mississippi oil and gas reserves are carried on Empiric's balance sheet
at $1.6 million. The actual reserve values at December 31, 1996 as determined
by H. J. Gruy & Associates, an independent engineering firm, is $3.45 million,
with a current value (10% discounted) is $2.23 million. The understated value
of $630,000 represents a reserve for future adjustments, if needed, and more
than offsets the "non-cash" writeoff of $430,993 incurred during the year 1996.
Empiric has not been able to produce the Mississippi oil and gas reserves due
to a shut down of the Tchula Gas Plant due to circumstances beyond the control
of Empiric. Empiric is currently negotiating and working with the present
Plant owner to reopen the Plant. In fact, Empiric is seeking funding to
purchase the gas processing facility. In addition, Empiric has indicated its
interest to participate in the drilling of one or two new wells located in the
vicinity of the Plant. The successful completion of this project will
substantially enhance the value of Empiric's Mississippi assets and related
cash flow. Empiric hopes to fund and reactivate the project by early or mid
summer 1997.
WESTAR "INFILL" DRILLING PROGRAM
(For additional details, please refer to Part 1, Item 1 in the attached
10-KSB). At year end, Empiric had a 55% working interest in three gas wells in
Westmoreland and Indiana Counties, Pennsylvania, in various stages of
completion and production but with estimated reserves of approximately 3.17 Bcf
of gas. Further, an additional five drilling sites were established with
financing for same committed by Empiric and its investors with a working
interest of approximately 60%.
A total of eight wells have been completed with seven producing and the
eighth well scheduled to be producing by the end of April 1997. The total
reserves are estimated to be approximately 6.6 Bcf of gas. Empiric's net
interest after all royalties, back in, carried interests, etc., is estimated
to be 2.5 Bcf, with revenues of $5.0 to $6.5 million depending on future gas
prices. Production for the eight wells should stabilize in the next several
weeks, at which time, Empiric will have an independent engineering firm
evaluate Empiric's reserve interest. It is expected that the discounted
present value (10%) will be in the $3.5 to $4.0 million range or equivalent
to approximately 75 cents per share outstanding. The wells are expected to
collectively produce 2.0 MMCF per day. Gas prices over the past year have
ranged from $1.90 to $5.00 per Mcf, with an average of approximately $3.00 per
Mcf.
Empiric estimates that approximately one-third (1/3) of the reserves (cash
flow) will be generated in the first three years and the Empiric investors
repaid well within that time frame.
NEW FINANCING PROGRAMS
Empiric is currently negotiating with the existing investors and other
industry sources to substantially increase the number of wells drilled on a
quarterly basis, as well as provide financing for other projects including
the development of a portion of Empiric's Texas Panhandle leases. Empiric
has listed approximately 13,000 acres in the Panhandle for sale.
DEBT RETIREMENT PROGRAM
In order to assure the financial viability of Empiric, a number of Empiric's
interested shareholders, including Management, exchanged approximately $500,000
of indebtedness for Empiric's common stock, ranging from 50 cents to $1.00 per
share. This exchange provided Empiric with $500,000 in equity that more than
of fset the "accounting" charge of $430,993.
Empiric's Management is still in the process of exchanging assets or common
shares for a future reduction or elimination of indebtedness in an amount equal
to approximately $150,000. This program would leave Empiric with a total
indebtedness of approximately $300,000.
TEXOIL ENERGY, INC.
Empiric currently owns 1.0 million common shares and $750,000 liquidation
value preferred shares, convertible into 750,000 common shares. Texoil has a
number of Canadian institutional and individual shareholders with energy-
related background and experience. Texoil, although currently inactive, is
expected to be reactivated with financing and assets furnished by its
shareholders and institutional shareholders in Canada who are interested in
refinancing Texoil and creating a public market for Texoil in Canada. Texoil
principal assets in approximately 4,000 leasehold acres, which are contiguous
to Empiric's Texas Panhandle acreage. This objective, if accomplished, would
add substantial value to Empiric's ownership of Texoil securities.
HISTORICAL DATUM
Empiric has had a very difficult two year period as a result of the original
public offering that raised only $2.5 million (90% of which was subscribed to
by Management, associates and friends) instead of $5.0 million. These funds
primarily retired indebtedness with Empiric having only a small amount of
working capital and still a substantial amount of short-term debt.
Management feels that Empiric has now turned the corner and will not only
continue to attract industry investors to participate in the current drilling
program, but industry sources or financial institutions will take an
equity/debt investment position that will permit Empiric to participate in or
expand its current operations, but also recruit a well-known industry executive
to come in as Empiric's President and Chief Operating Officer. The
accomplishment expanding the existing drilling programs, the development of
new programs and a new Chief Operating Officer should substantially enhance
the valueof Empiric common shares.
Please call the undersigned for any comments or questions regarding this
report.
EMPIRIC ENERGY, INC.
_________________________________
James J. Ling, President
_________________________________
Clyde E. Skeen, Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> $ 1,084
<SECURITIES> 0
<RECEIVABLES> 31,000<F3><F10>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 101,301
<PP&E> 3,894,172<F1><F3><F10>
<DEPRECIATION> 1,535,833
<TOTAL-ASSETS> 2,466,515
<CURRENT-LIABILITIES> 455,190<F4>
<BONDS> 0
0
448,803
<COMMON> 43,307
<OTHER-SE> 1,519,215
<TOTAL-LIABILITY-AND-EQUITY> 2,466,515
<SALES> 94,978
<TOTAL-REVENUES> 281,578
<CGS> 109,056
<TOTAL-COSTS> 305,094
<OTHER-EXPENSES> 430,993<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,938<F1>
<INCOME-PRETAX> 491,446
<INCOME-TAX> 0<F5>
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 430,993<F1>
<CHANGES> 0
<NET-INCOME> 291,446
<EPS-PRIMARY> .012<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F3>In 1992, the Company acquired undivided interests in a producing well
located in Mississippi. Current production from this well is being retained by
the operator of the well to offset costs it incurred in a major reworking
program. Upon receipt of full payment and satisfaction of this obligation,
future revenue will revert to Empiric Energy, Inc. This property was recorded
at its fair market value of $1.6 million. This value was based on the dis-
counted value of estimated reserves of the property less a provision for all
claims and encumbrances which may be assessed against the property as estimated
by management. The estimated reserves were determined by independent
professional engineers. In exchange for this property and other valuable
assets, including the opportunity to acquire the working interests in the
Panhandle properties and for obtaining the initial financing to form the
company, 1.75 million shares of stock and $125,000 in convertible senior
notes were issued. In 1993, the Company acquired an additional 28.5%
undivided interest in property in the Texas Panhandle. This additional
interest was acquired for the assumption of the debts of the former operator
and included a substantial amount of supplies. The amount of the debts
assumed plus other expenditures related to the transaction totaled
approximately $450,000. Part of this additional interest in the property
was sold shortly thereafter for $450,000. The supplies were used on the
Company's projects in the Panhandle.
Pursuant to an agreement dated March 23, 1995, between the Company and Texoil
Energy, Inc. ("Texoil"), a Canadian corporation, Texoil acquired one-half of
the Company's interest in approximately 9,300 acres of oil and casinghead gas
leases in Moore and Potter Counties, Texas, including the 7,000 acres on the
Brent Ranch, and 225,000 shares of the Company's Common Stock. In
consideration, the Company received $128,750 cash and a $121,250 note due in
August, 1995, 1,000,000 shares of Texoil Common Stock and $750,000 principal
amount of 6% preferred stock, convertible into 750,000 shares of Texoil Common
Stock.
<F10>On December 21, 1995, the Company entered into an agreement with Lyon
Operating Co., Inc. for the purchase of an undivided 72% of the leasehold or
working interest in approximately 1,223 acres of land situated in Clay and Jack
Counties, Texas. For this interest, the Company paid $30,000 cash, a
promissory note for $35,000 with interest at eight percent (8%) payable on or
before March 21, 1996, and 20,000 shares of the Company's stock. The Company
is currently in default in payment of this note.
<F1>Cash Flows Presentation: For purposes of this Statement of Cash Flows cash
equivalents include time deposits, certificates of deposit and all liquid debt
instruments with original maturities of three months or less.
Earnings Per Share: Primary earnings per share amounts are computed based on
the weighted average number of shares actually outstanding plus the shares that
would be outstanding assuming conversion of the senior convertible notes
payables which are considered to be common stock equivalents. Net loss has
been adjusted for interest expense (net of tax) on the convertible debt. The
number of shares used in the computations were 4,162,733 in 1996, 3,933,019 in
1995 and 3,734,186 in 1994. Fully diluted earnings per share consisting of the
weighted average of common shares outstanding plus the fully converted
preferred stock are not presented because the effect would be anti-dilutive.
<F4>Notes Payable and Current Portion of Long-Term Debt
Notes Payable consist of:
1996 1995
Senior secured notes dated December 31
1995, due 12-31-98 with 8% interest $ $267,520
Bank Note due on demand with 12% interest 100,000 75,000
Lyon Operating Co., Inc. dated December 21
1995, due March 21, 1996 35,000 35,000
Other Notes Payable, due on demand 39,850 22,628
Total $205,195 $400,148
Less: portion due within one year (205,195) (132,628)
TOTAL LONG-TERM DEBT $ - $ 67,520
On December 31, 1995, the Company issued $267,520 in senior secured notes
payable bearing interest at 8%, payable each six (6) months. The full amount
of the principal was due thirty-six (36) months from that date. The notes were
issued to two stockholders of the Company. On October 1, 1996, these notes
were exchanged for the Company's preferred stock.
The Company is in default on the note due to Lyon Operating Co.
<F5>The Company has available net operating loss carryforward to reduce future
taxable income and income taxes which will expire for financial and tax
purposes as follows:
Financial Tax
December 31, 2007 $ 37,661 $ 505,161
December 31, 2008 286,454 823,485
December 31, 2009 998,929 627,142
December 31, 2010 245,636 220,357
December 31, 2011 491,447 172,485
Totals $2,450,736 $2,348,630
The Company believes that the tax benefit computed under FASB 109 would not
likely be realized and would be fully reserved.
</FN>
</TABLE>
