SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended SEPTEMBER 30, 1998.
---------------------
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period from _______ to _______.
Commission file number 1-13162
EMPIRIC ENERGY, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-2455467
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
12750 MERIT DRIVE, SUITE 750
DALLAS, TEXAS 75251
(Address of principal executive offices) (Zip Code)
(972) 387-4100
(Registrant's telephone number, including area code)
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
----- -----
State the number of shares outstanding of each of the issuer's classes of common
equity, as of September 30, 1998. 6,827,186
---------
Transitional Small Business Disclosure Format Yes No X
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Page 1 of 9 pages contained in the sequential number system. The Exhibit Index
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is on Page 8 of the sequential numbering system.
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<CAPTION>
EMPIRIC ENERGY, INC.
INDEX TO FORM 10-QSB
PART I PAGE
<S> <C> <C>
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis of Financial Condition 5
and Results of Operations
PART II
Item 1. Legal Proceedings 8
Item 2. Changes in Securities 8
Item 3. Defaults Upon Senior Securities 8
Item 4. Submission of Matters to a Vote of Securities Holders 8
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURE PAGE 9
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ii
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -------- ---------------------
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, 1997.
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
September 30, 1998 December 31, 1997
ASSETS (Unaudited)
<S> <C> <C>
Current Assets
Cash. . . . . . . . . . . . . . . . . . . . . . . . . $ 11,575 $ 18,811
Accounts Receivable . . . . . . . . . . . . . . . . . 96,168 63,225
Notes Receivable. . . . . . . . . . . . . . . . . . . 187,351 31,000
-------------------- -------------------
Total Current Assets. . . . . . . . . . . . . . . . 295,093 113,036
-------------------- -------------------
Oil and Gas Properties, using full cost accounting
Properties being amortized. . . . . . . . . . . . . . 5,461,523 3,692,500
Less accumulated depreciation, depletion, amortization
and impairment . . . . . . . . . . . . . . . . . . (1,593,604) (1,555,250)
-------------------- -------------------
Net Oil and Gas Properties. . . . . . . . . . . . . . 3,867,919 2,137,250
-------------------- -------------------
Other Assets
Other property and equipment, at cost, less
accumulated depreciation. . . . . . . . . . . . . . 5,858 -
Other . . . . . . . . . . . . . . . . . . . . . . . . 3,281 2,076
-------------------- -------------------
Total Other Assets. . . . . . . . . . . . . . . . . 9,139 2,076
-------------------- -------------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . $ 4,172,151 $ 2,252,362
==================== ===================
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1
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CONDENSED BALANCE SHEETS - (CONTINUED)
September 30, 1998 December 31, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
<S> <C> <C>
Current Liabilities
Accounts Payable . . . . . . . . . . . . . . $ 99,441 $ 79,414
Due to stockholders. . . . . . . . . . . . . 17,981 17,981
Short-term notes payable . . . . . . . . . . 264,574 30,000
-------------------- -------------------
Total Current Liabilities. . . . . . . . . 381,996 127,395
Long-Term Notes Payable. . . . . . . . . . . 687,500 -
-------------------- -------------------
TOTAL LIABILITIES. . . . . . . . . . . . . . 1,069,496 127,395
Stockholders' Equity
Preferred stock, $100 par value; authorized
2,000,000 shares; 5,250 shares and none
outstanding, respectively. . . . . . . . 525,000 -
Common Stock, $0.01 par value; authorized
20,000,000 shares; issued 6,827,186 shares
and 5,859,776, respectively. . . . . . . . 68,272 58,598
Additional paid-in capital . . . . . . . . . 5,006,067 4,286,662
Retained deficits. . . . . . . . . . . . . . (2,496,685) (2,220,292)
-------------------- -------------------
Total Stockholders' Equity . . . . . . . . 3,102,654 2,124,968
-------------------- -------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY . . . . . . . . . . . . $ 4,172,151 $ 2,252,362
-------------------- -------------------
</TABLE>
2
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CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Nine Months Ended Three Months Ended
---------------------------- ----------------------------
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues
Oil and Gas Sales . . . . . . . . . . . . . $ 145,150 $ 91,910 $ 76,224 $ 59,325
Expenses
Production. . . . . . . . . . . . . . . . . 68,603 54,954 46,826 37,996
Depreciation, depletion, and amortization . 39,836 18,748 21,545 14,471
Interest. . . . . . . . . . . . . . . . . . 25,730 9,275 7,440 5,479
General and administrative. . . . . . . . . 335,969 146,844 87,512 85,838
------------- ------------- ------------- -------------
TOTAL EXPENSES. . . . . . . . . . . . . . 470,138 229,821 163,323 143,584
------------- ------------- ------------- -------------
Other Income
Dividend Income . . . . . . . . . . . . . . 33,750 33,750 11,250 22,500
Other Income. . . . . . . . . . . . . . . . 14,844 - 6,640 -
------------- ------------- ------------- -------------
TOTAL OTHER INCOME. . . . . . . . . . . . 48,594 33,750 17,890 22,500
------------- ------------- ------------- -------------
Loss before provision for income taxes and
extraordinary item . . . . . . . . . . . (276,393) (104,161) (69,209) (61,759)
Provision for income taxes . . . . . . . . . - - - -
------------- ------------- ------------- -------------
Loss before extraordinary item . . . . . . . (276,393) (104,161) (69,209) (61,759)
Extraordinary item:
Gain from debt restructuring . . . . . . . . - 56,067 - 26,303
------------- ------------- ------------- -------------
NET AND COMPREHENSIVE LOSS . . . . . . . . . $ (276,393) $ (48,094) $ (69,209) $ (35,456)
============= ============= ============= =============
Basic and diluted net and comprehensive loss
per share before extraordinary items . . . $ (0.04) $ (0.01) $ (0.01) $ (0.01)
============= ============= ============= =============
Basic and diluted net and comprehensive loss
per share after extraordinary items. . . . $ (0.04) $ (0.01) $ (0.01) $ (0.01)
============= ============= ============= =============
Weighted average shares. . . . . . . . . . . 6,386,484 4,899,180 6,803,286 5,019,486
============= ============= ============= =============
</TABLE>
3
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<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
--------------------------------
September 30, September 30,
1998 1997
(Unaudited) (Unaudited)
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities
Net Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (276,393) $ (48,791)
Adjustments to reconcile net loss to net cash provided
by operating activities
Depreciation, depletion and amortization. . . . . . . . . . . . . . . 39,836 23,697
(Increase) decrease in :
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . (32,925) (38,218)
Other Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,205) (731)
Increase (decrease) in:
Accounts payable and accrued expenses . . . . . . . . . . . . . . . 20,027 (89,620)
--------------- ---------------
NET CASH USED BY OPERATING ACTIVITIES. . . . . . . . . . . . . . . . . (250,660) (153,663)
--------------- ---------------
Cash flows from investing activities
Purchase of oil and gas properties. . . . . . . . . . . . . . . . . . (168,323) (81,303)
Purchase of other property and equipment. . . . . . . . . . . . . . . (7,340) -
Increase in Notes Receivable. . . . . . . . . . . . . . . . . . . . . (56,351) -
--------------- ---------------
NET CASH USED BY INVESTING ACTIVITIES. . . . . . . . . . . . . . . . . (232,014) (81,303)
--------------- ---------------
Cash flows from financing activities
Net proceeds (repayments) from short-term notes payable . . . . . . . 234,574 (26,671)
Net proceeds from long-term debt. . . . . . . . . . . . . . . . . . . 162,500 -
Proceeds from issuance of common. . . . . . . . . . . . . . . . . . . 78,364 263,949
Proceeds from issuance of preferred stock . . . . . . . . . . . . . . - -
Proceeds from sale of oil and gas properties. . . . . . . . . . . . . - -
--------------- ---------------
NET CASH PROVIDED BY INVESTING ACTIVITIES . . . . . . . . . . . . . . 475,438 237,278
--------------- ---------------
NET INCREASE IN CASH AND CASH EQUIVALENTS. . . . . . . . . . . . . . . (7,236) 2,312
CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD. . . . . . . . . . . 18,811 1,084
--------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD. . . . . . . . . . . . . . . $ 11,575 $ 3,396
=============== ===============
SUPPLEMENTAL INFORMATION AND NON-CASH INVESTING & FINANCING ACTIVITY
Interest paid during the year. . . . . . . . . . . . . . . . . . . . . $ 10,503 $ 762
=============== ===============
Income taxes paid during the year. . . . . . . . . . . . . . . . . . . $ - $ -
=============== ===============
Acquisition of oil and gas properties for debt and stock . . . . . . . $ 1,600,700 $ -
=============== ===============
Notes receivable acquired for debt and stock . . . . . . . . . . . . . $ 100,000 $ -
=============== ===============
</TABLE>
4
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NOTES TO FINANCIAL STATEMENTS
Note 1. Acquisition of Properties
Effective April 1, 1998, the Company acquired 16 producing wells and 18,000
acres in South Texas and 300 acres in South Louisiana valued at $1,700,700.
Consideration was 992,577 shares of Common stock (Rule 144), 5,250 shares of
$100 Convertible Preferred stock, $525,000 of Convertible Senior Notes, 300,000
Class B Warrants and 200,000 Class C Warrants. the transaction was accounted
for under the Purchase Method of Accounting. Revenues and expenses of the
properties are included in the Company's Statement of Operations beginning April
1, 1998.
The following pro forma information has been prepared as if the acquisition
had been completed at the beginning of the respective periods:
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
1998 1997
---------- --------
<S> <C> <C>
Revenues. . . . . . . . . . $ 195,712 $357,082
Net (loss) income . . . . . $(283,569) $ 31,039
Net (loss) income per share $ (0.04) $ 0.01
</TABLE>
See notes to financial statements included in the Company's 1997 Annual
Report on Form 10-KSB.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Oil and gas sales of $76,224 for the quarter ended September 30, 1998
represented an increase of $16,899 from the comparable 1997 quarter. This
increase was due to an acquisition. Total expenses of $163,323 for the quarter
ended September 30, 1998 represented an increase of $19,739 from the comparable
1997 quarter. The increase was due to the increase in overhead due to the
hiring of a President and Chief Operating Officer and the additional operating
expenses related to the properties acquired. Total net loss of $69,209
represented an increase of $33,754 from the net loss for the comparable 1997
quarter due to the factors cited above, and a non-cash gain from debt
restructuring during 1997 of $26,303.
For the nine months ended September 30, 1998, oil and gas sales of $145,150
represented an increase of $53,240 from the comparable 1997 period. This
increase was due to an acquisition. Total expenses of $470,138 represented an
increase of $240,317 from the comparable 1997 quarter. The increase was due to
the increase in overhead due to the hiring of a President and Chief Operating
Officer and the additional operating expenses related to the properties
acquired. Total net loss of $276,393 represented an increase of $227,489 from
the net loss for the comparable 1997 period due to the factors cited above, and
a non-cash gain from debt restructuring during 1997 of $56,067.
5
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LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company had a total equity of $3,102,654
compared to $2,124,968 at December 31, 1997, a 46% increase. However, the
shares outstanding increased only 17% from 5,859,776 to 6,827,186 during the
same period. This increase is primarily due to the acquisition of producing and
other properties with equity of the Company. There was a working capital
deficit of $86,903 at September 30, 1998 compared to a deficit of $14,358 at
December 31, 1997.
STRATEGY, BUSINESS PLANS AND NEED FOR THE INFUSION OF CAPITAL
The Company has continued to seek acquisitions of properties for growth and
profit. Additional capital is needed to complete two identified acquisitions
and to develop undeveloped reserves of the Company. Various sources of
financing, including the issuance of debt and equity securities are being
investigated. (See "Subsequent Events")
SUBSEQUENT EVENTS
On October 26 and 28, 1998, the Company signed two Letters of Intent to
acquire from two private independent energy companies, approximately 60
producing oil and gas wells located in the East Texas Field, Gregg County,
Texas, Billie J. Hall Field, Palo Pinto County, Texas, Denver-Julesberg Basin in
Colorado, and South Louisiana. In addition the acquired properties have
substantial development drilling potential. Approximately $170,000 net cash
flow per month is being generated by the producing properties of which oil and
gas revenues are approximately 50% each.
The estimated total future net revenues of the proved developed producing
oil and gas reserves is in excess of $14.5 million based on prevailing energy
prices.
Empiric's total cost to acquire the various oil and gas properties is in
excess of $9.0 million of which the sellers will be issued approximately $1.55
million in Empiric Common and Convertible Preferred shares, with the balance in
cash.
Empiric has received a favorable early review from a major energy venture
capital organization in granting a $25.0 million credit facility, of which
approximately $7.8 million will be used in the acquisition of the previously
described production and properties, with $2.5 million to be used to initiate
production from shut-in wells and a drilling program in early 1999. The $14.7
million balance will be used for future acquisitions or drilling programs. The
venture capital organization is expected to purchase a substantial equity
position from the original $10.0 million investment, with the balance covered by
Senior Notes. The entire transaction is subject to new third party engineering
studies, environmental due diligence and final negotiation.
Empiric's objective is to complete the above proposed transactions prior to
year end 1998.
6
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Y2K DISCLOSURES
The Company has assessed the impact of the Year 2000 concerns regarding its
operations. Management uses accounting and engineering software supplied by
third party vendors. Each vendor supplying software has been contacted and has
assured the Company in writing that the software is fully compliant with Year
2000 requirements.
In addition, Management has contacted each third party vendor that provides
auditing, accounting, banking, stock transfer and engineering services to the
company and has been assured, in writing, that each vendors' software is fully
compliant with Year 2000 requirements.
The Company has no internal information technology systems and has no
manufacturing or process control systems operating within the Company.
Therefore, Management believes that there will be no significant financial
impact to the Company.
7
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PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- -------- ------------------
NONE
ITEM 2. CHANGES IN SECURITIES
- -------- -----------------------
Issued 47,800 shares of Common stock, 15,000 shares Class B and 15,000
shares Class C warrants.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- -------- ----------------------------------
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
- -------- -------------------------------------------------------------
NONE
ITEM 5. OTHER INFORMATION
- -------- ------------------
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -------- -------------------------------------
NONE
8
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SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the Registrant has
caused this Form 10-QSB Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
EMPIRIC ENERGY, INC.
By: /s/ James J. Ling Date: November 13, 1998
- ------------------------------------
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
/s/ Clyde E. Skeen Date: November 13, 1998
- ------------------------------------
Clyde E. Skeen
Chief Financial Officer
/s/ James J. Ling Date: November 13, 1998
- ------------------------------------
James J. Ling
Chairman and Chief Executive Officer
/s/ R. Renn Rothrock, Jr. Date: November 13, 1998
- ------------------------------------
R. Renn Rothrock, Jr.
President and Chief Operating Officer
9
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 11575
<SECURITIES> 0
<RECEIVABLES> 283519
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 295093
<PP&E> 5461523
<DEPRECIATION> 1593604
<TOTAL-ASSETS> 4172151
<CURRENT-LIABILITIES> 381996
<BONDS> 0
<COMMON> 68272
0
525000
<OTHER-SE> 2509382
<TOTAL-LIABILITY-AND-EQUITY> 4172151
<SALES> 145150
<TOTAL-REVENUES> 193744
<CGS> 108439
<TOTAL-COSTS> 470137
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25730
<INCOME-PRETAX> (276393)
<INCOME-TAX> 0
<INCOME-CONTINUING> (276393)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (276393)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
