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, 1999
[ ] 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)
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TEXAS 75-2455467
(State or other jurisdiction of
incorporation or organization) (IRS Employer Identification No.)
12750 MERIT DRIVE, SUITE 750 75251
DALLAS, TEXAS
(Address of principal executive offices) (Zip Code)
(972) 387-4100
(Registrant's telephone number, including area code)
</TABLE>
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 _____No __X___
State the number of shares outstanding of each of the issuer's classes of common
equity, as of September 30, 1999. 8,699,027
Transitional Small Business Disclosure Format Yes _____No __X___
Page 1 of 7 pages contained in the sequential number system. The Exhibit Index
is on Page 6 of the sequential numbering system.
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EMPIRIC ENERGY, INC.
INDEX TO FORM 10-QSB
PART I PAGE
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Item 1 Financial Statements 1
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 4
PART II
Item 1. Legal Proceedings 6
Item 2. Changes in Securities 6
Item 3. Defaults Upon Senior Securities 6
Item 4. Submission of Matters to a Vote of Securities Holders 6
Item 5 Other Information 6
Item 6. Exhibits and Reports on Form 8-K 6
SIGNATURE PAGE 7
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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, 1998.
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BALANCE SHEET
September 30, 1999
ASSETS (Unaudited) December 31, 1998
-------------------- -------------------
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CURRENT ASSETS
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 190,467 $ 721
Accounts receivable
Oil and gas sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,423 43,188
Employee advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,939 3,041
Subscriptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 -
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,114 -
-------------------- -------------------
Total Current Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369,943 46,950
PROPERTY AND EQUIPMENT
Oil and gas properties (full cost method):
Unproved leasehold costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307,718 179,609
Proved leasehold costs and well equipment . . . . . . . . . . . . . . . . . . . . 4,557,544 4,318,875
Less accumulated depreciation, depletion, and impairment. . . . . . . . . . . . . (2,575,864) (2,444,578)
-------------------- -------------------
Net property and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,289,398 2,053,906
OTHER FURNITURE AND EQUIPMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 8,771 8,346
DEPOSITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,281 3,281
-------------------- -------------------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,671,393 $ 2,112,483
==================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------
CURRENT LIABILITIES
Current portion of long-term, debt, including related parties . . . . . . . . . . $ 400,872 $ 411,043
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . 314,010 141,740
Oil and gas revenues payable. . . . . . . . . . . . . . . . . . . . . . . . . . . 7,958 8,962
Due to stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,981 21,731
-------------------- -------------------
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 740,821 583,476
LONG-TERM DEBT, net of current portion, including related parties . . . . . . . . 216,192 141,760
STOCKHOLDER=S EQUITY
Common stock, $0.01 par value; 20,000,000 shares authorized; 8,699,027 and
7,625,353 shares issued and outstanding, respectively. . . . . . . . . . . . . 86,990 76,254
Series A convertible preferred stock, $0.05 par value, 57,500 shares outstanding,
$575,000 liquidation preference. . . . . . . . . . . . . . . . . . . . . . . . 2,875 43,168
Common stock subscribed, 390,000 shares. . . . . . . . . . . . . . . . . . . . . 3,900
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,829,782 4,987,884
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (74,061) (74,061)
Obligation to repurchase treasury stock . . . . . . . . . . . . . . . . . . . . . (11,875) (11,875)
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,123,231) (3,634,123)
-------------------- -------------------
Total Stockholders' Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,714,380 1,387,247
-------------------- -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. . . . . . . . . . . . . . . . . . . . $ 2,671,393 $ 2,112,483
==================== ===================
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CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Nine Months Ended Three Months Ended
------------------- ------------------------
September 30, September 30,
------------------- ------------------------
1999 1998 1999
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
- ------------------------------------------------------------ ------------------- ------------------------ ------------
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REVENUE -
Oil and gas sales. . . . . . . . . . . . . . . . . . . . . . $ 139,592 $ 145,150 $ 51,343
- ------------------------------------------------------------ ------------------- ------------------------ ------------
COSTS AND EXPENSES:
- ------------------------------------------------------------
Production expense . . . . . . . . . . . . . . . . . . . . . 83,527 68,603 51,156
------------------- ------------------------ ------------
Depletion and depreciation . . . . . . . . . . . . . . . . . 134,553 39,836 44,885
------------------- ------------------------ ------------
General and administrative . . . . . . . . . . . . . . . . . 419,960 335,969 188,929
------------------- ------------------------ ------------
Total costs and expenses . . . . . . . . . . . . . . . . . . 638,040 444,408 284,970
------------------- ------------------------ ------------
OTHER INCOME (EXPENSE):
Dividend income. . . . . . . . . . . . . . . . . . . . . . . 0 33,750 0
------------------- ------------------------ ------------
Consulting income . . . . . . . . . . . . . . . . . . . . . 945 0 0
------------------- ------------------------ ------------
Other income . . . . . . . . . . . . . . . . . . . . . . . . 62,649 14,844 37,500
------------------- ------------------------ ------------
Interest expense . . . . . . . . . . . . . . . . . . . . . . (54,253) (25,730) (14,630)
------------------- ------------------------ ------------
Total other income (expense) . . . . . . . . . . . . . . . . 9,341 22,864 22,870
------------------- ------------------------ ------------
NET LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . $ (489,107) $ (276,393) $ (210,757)
=================== ======================== ============
BASIC AND DILUTED NET LOSS PER SHARE: . . . . . . . . . . . $ (.06) $ (.04) $ (.02)
=================== ======================== ============
WEIGHTED AVERAGE SHARES OUTSTANDING. . . . . . . . . . . . . 8,148,844 6,386,484 8,445,980
=================== ======================== ============
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
1998
(Unaudited)
- ------------------------------------------------------------
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REVENUE -
Oil and gas sales. . . . . . . . . . . . . . . . . . . . . . $ 76,224
- ------------------------------------------------------------ -----------
COSTS AND EXPENSES:
- ------------------------------------------------------------
Production expense . . . . . . . . . . . . . . . . . . . . . 46,826
-----------
Depletion and depreciation . . . . . . . . . . . . . . . . . 21,545
-----------
General and administrative . . . . . . . . . . . . . . . . . 87,512
-----------
Total costs and expenses . . . . . . . . . . . . . . . . . . 155,883
-----------
OTHER INCOME (EXPENSE):
Dividend income. . . . . . . . . . . . . . . . . . . . . . . 11,250
-----------
Consulting income . . . . . . . . . . . . . . . . . . . . . 0
-----------
Other income . . . . . . . . . . . . . . . . . . . . . . . . 6,640
-----------
Interest expense . . . . . . . . . . . . . . . . . . . . . . (7,440)
-----------
Total other income (expense) . . . . . . . . . . . . . . . . 10,450
-----------
NET LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . $ (69,209)
===========
BASIC AND DILUTED NET LOSS PER SHARE: . . . . . . . . . . . $ (.01)
===========
WEIGHTED AVERAGE SHARES OUTSTANDING. . . . . . . . . . . . . 6,803,286
===========
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STATEMENT OF CASH FLOWS
Nine Months Ended
---------------------------
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Sept. 30, 1999 (Unaudited) Sept. 30, 1998 (Unaudited)
--------------------------- ---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (489,107) $ (276,393)
--------------------------- ---------------------------
Adjustments to reconcile net loss to net cash from operating activities:
Depletion, depreciation and impairment . . . . . . . . . . . . . . . . . 134,553 39,836
--------------------------- ---------------------------
Common stock, warrants and options issued for services . . . . . . . . . 99,335 -
--------------------------- ---------------------------
Changes in assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . (33,247) (32,925)
--------------------------- ---------------------------
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (1,205)
--------------------------- ---------------------------
Accounts payable and accrued expenses. . . . . . . . . . . . . . . . . . 172,270 20,027
--------------------------- ---------------------------
Oil and gas revenues payable . . . . . . . . . . . . . . . . . . . . . . (1,004) -
--------------------------- ---------------------------
Due to related parties . . . . . . . . . . . . . . . . . . . . . . . . . (3,750) -
--------------------------- ---------------------------
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,693) -
--------------------------- ---------------------------
Net cash used by operating activities. . . . . . . . . . . . . . . . . . (124,643) (250,660)
- ------------------------------------------------------------------------ --------------------------- ---------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
- ------------------------------------------------------------------------
Purchase of oil and gas properties . . . . . . . . . . . . . . . . . . . (343,363) (168,323)
- ------------------------------------------------------------------------ --------------------------- ---------------------------
Purchase of other property & equipment . . . . . . . . . . . . . . . . . - (7,340)
- ------------------------------------------------------------------------ --------------------------- ---------------------------
Increase in notes receivable . . . . . . . . . . . . . . . . . . . . . . - (56,351)
--------------------------- ---------------------------
Net cash used by investing activities. . . . . . . . . . . . . . . . . . (343,363) (232,014)
--------------------------- ---------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from short-term notes payable . . . . . . . . . . . . . . . - 234,574
--------------------------- ---------------------------
Proceeds from long-term debt . . . . . . . . . . . . . . . . . . . . . . 342,784 162,500
--------------------------- ---------------------------
Repayments of long-term debt . . . . . . . . . . . . . . . . . . . . . . (85,437) -
--------------------------- ---------------------------
Proceeds from sales of common stock. . . . . . . . . . . . . . . . . . . 400,405 78,364
--------------------------- ---------------------------
Net cash provided by financing activities. . . . . . . . . . . . . . . . 657,752 475,438
- ------------------------------------------------------------------------ --------------------------- ---------------------------
NET INCREASE (DECREASE) IN CASH. . . . . . . . . . . . . . . . . . . . . 189,746 (7,236)
--------------------------- ---------------------------
CASH, beginning of the period. . . . . . . . . . . . . . . . . . . . . . 721 18,811
--------------------------- ---------------------------
CASH, end of the period. . . . . . . . . . . . . . . . . . . . . . . . . 190,467 11,575
- ------------------------------------------------------------------------ =========================== ===========================
SUPPLEMENTAL INFORMATION:
Cash paid during the year for interest . . . . . . . . . . . . . . . . . 53,252 10,503
=========================== ===========================
NON-CASH INVESTING AND FINANCING ACTIVITY:
Purchase of oil and gas properties with equity securities, including
convertible notes payable . . . . . . . . . . . . . . . . . . . . . 23,415 1,600,700
=========================== ===========================
Unamortized portion of notes payables discount. . . . . . . . . . . . . 30,259 -
=========================== ===========================
Conversion of Notes Payable into Common stock. . . . . . . . . . . . . . 162,827 -
=========================== ===========================
Purchase of furniture and equipment with notes payable . . . . . . . . . 3,691 -
=========================== ===========================
Notes receivable acquired for debt and stock . . . . . . . . . . . . . . - 100,000
=========================== ===========================
Common stock subscriptions receivable. . . . . . . . . . . . . . . . . . 100,000 -
- ------------------------------------------------------------------------ =========================== ===========================
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NOTES TO FINANCIAL STATEMENTS
See notes to financial statements included in the Company's 1998 Annual
Report on Form 10-KSB.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Quarter ended 9/30/99 vs. quarter ended 9/30/98
0il and gas sales of $51,343 for the quarter ended September 30, 1999,
represented a decrease of $24,881 from the comparable 1998 quarter. This
decrease was due to declining revenues from the acquisition made in April 1998.
Total expenses (excluding interest expense) of $284,970 for the quarter ended
September 30, 1999 are $129,087 more than the 1998 quarter. This increase is due
to higher public relations and financing expenses in the current quarter, which
also comprises the increase in G&A expenses of $101,417. Interest expense of
$14,630 for the nine months ended September 30, 1999 is $7,180 higher than the
quarter in 1998 due to slightly higher interest rates on the notes in 1998 and
amortization of discounts. The increase in other income resulted from the
recovery of a receivable reserved in 1998. Total net loss of $210,757
represented an increase of $141,548 over the net loss for the comparable 1998
quarter due to the revenue and other income factors cited above.
Nine months ended 9/30/99 vs. nine months ended 9/30/98
Oil and gas sales of $139,592 during nine months ended September 30, 1999
represented an decrease of $5,558 over the comparable 1998 period. This
decrease was due to declining prices and production from the properties acquired
in 1998. Total expenses of $638,040 represented an increase of $193,632 for the
nine months ended September 30, 1999 compared to the 1998 period. This increase
is due to higher public relations and financing expenses which also accounted
for the increase in G&A expenses. Interest expenses of $54,243 during the nine
months ended September 30, 1999 was $28,523 higher than the 1998 period
resulting from additional borrowings to fund the Company's negative cash flow.
Other income increased due to recovery of a receivable reserved in 1998 in the
nine months ended September 30, 1999. Total net loss of $489,107 represented an
increase of $212,714 over the comparable period in 1998 due to the factors cited
above.
Empiric announced on September 15, 1999 the revision of a Letter of Intent to
acquire all of the Common shares of J Consulting Group, Inc. that owns four
sets of properties located in three states - Texas, Oklahoma and New Mexico.
The negotiations were conducted in private and were not subject to competitive
bidding. The net proved/producing reserves are estimated by the Company to be
approximately 2.6 million BOE, and the net probable "behind the pipe" reserves
in the 1.5 to 3.0 million BOE range. A program to develop the "behind the pipe"
reserves will be commenced shortly after closing.
The purchase price has been revised to $13.5 million, consisting of $9.5 million
cash and 4.0 million of Empiric Common shares. The purchase price may increase
substantially at the rate of $2.00 per Bbl by the development of probable
("behind the pipe") reserves to proved, producing reserves.
Empiric estimated the current annualized revenue from the acquisition based on
current energy prices to $2.8 million. The development of the "behind the pipe"
reserves to current producers is expected to increase the annual revenue to $7.5
million by the end of 1999. This would be equal to a cash flow ranging from
$0.03 to $0.50 per share.
The acquisition includes a non-operating interest in more than five hundred
wells and 400+ miles of associated gas gathering systems covering five counties
in two separate states. More than 80 wells have been drilled in the last two
years, with approximately 160 additional development locations remaining.
J Consulting Group, Inc. owns an additional interest in 103 producing wells in
the same area. J Consulting Group, Inc. estimates that the long life, stable
properties have more than 20 years reserve life remaining.
On September 17, 1999, the Company announced an agreement with Daedalus
Building Systems, Inc. to exchange Empiric securities of $1,500,000 in preferred
stock, convertible to 750,000 shares of Common and 750,000 Series "G" Warrants,
each allowing the purchase of one common share at $2.00 per share for three
years for Daedalus securities consisting of 1,500,000 Common shares and 750,000
Warrants, each allowing the purchase of one share of common stock for $2.00 per
share for three years. A Registration Statement is being prepared, and, upon
approval by the Securities and Exchange Commission, a minimum of 1,000,000 fully
registered shares will be distributed as a dividend. It is the opinion of
Company management that the dividend will be taxable to Empiric
shareholders. The exact ratio of shares to be distributed to each shareholder
will be determined at the time the Registration Statement is approved.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, the Company had a net worth of $1,714,380
compared to a net worth of $1,387,247 at December 31, 1998. This increase is
due to the sale of securities by the Company and the conversion of some of those
securities and other indebtedness to equity.
There was a working capital deficit of $370,878 at September 30, 1999
compared to $536,526 at December 31, 1999.
The Company sold the entire eight units of a Private Placement consisting of
$50,000 convertible long term notes and 25,000 shares of Common stock during the
quarter. Six of these notes totaling $3,000,000 were converted upon issuance to
Common stock at $1.00 per share.
In addition, the Company sold Common stock or issued stock for financial
services during the quarter. Total shares issued were 298,300 at prices ranging
from $0.42 to $0.60 per share.
The Series "B" and "C" Warrants issued in the property acquisition during
1998 were reissued at an exercise price of $1.50 per share and $2.00 per share
respectively.
SUBSEQUENT EVENTS
The Company authorized a Private Placement of a minimum of 12 and a maximum
of 20 Units at $200,000 each. A Unit consists of $175,000 Series "B"
Convertible Preferred Stock, convertible into Common shares at $2.00 per share,
125,000 shares of common stock and 25,000 warrants, each allowing the purchase
of one share of common stock at $2.00 per share for three years.
STRATEGY, BUSINESS PLANS AND NEED FOR THE INFUSION OF CAPITAL
Additional capital is needed to complete acquisitions and implement the
drilling and workover programs. Various sources of financing, including the
issuance of debt and equity securities are being investigated.
YEAR 2000 COMPLIANCE
The Company has assessed the impact of the Year 2000 issue on its
operations, including the development and implementation of project plans and
cost estimates required to make its information systems Year 2000 compliant.
The Company outsources its financial and evaluation functions and has received
written representation from every significant vendor supplying software or
services, including revenue checks, that each vendor's information system is
Year 2000 compliant. Therefore, the Company believes that anticipated spending
necessary to become Year 2000 compliant will not have a material effect on the
financial position, cash flows or results of operations of the Company. There
can be no assurance, however, as to the ultimate effect of the Year 2000 issue
on the Company.
<PAGE>
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2. CHANGES IN SECURITIES
586,100 shares of Common stock were issued and 390,000 shares of Common stock
were subscribed.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
At Annual Meeting of Shareholders held June 21, 1999, Directors James J. Ling,
Clyde E. Skeen, R. Renn Rothrock, Jr. and Robert L. Thomas were elected. Hein +
Associates LLP were elected as auditors for 1999.
ITEM 5. OTHER INFORMATION
Mr. Robert L. Thomas resigned as a Director July 15, 1999 due to a potential
conflict on interest.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
NONE
SIGNATURES
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: October 1, 1999
EMPIRIC ENERGY, INC.
By: /s/ Clyde E. Skeen
---------------------
Clyde E. Skeen
Chief Financial Officer
By: /s/ James J. Ling
--------------------
James J. Ling
Chairman and Chief Executive Officer
By: /s/ R. Renn Rothrock, Jr.
-----------------------------
R. Renn Rothrock, Jr.
President and Chief Operating Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PERIOD-TYPE> 9 MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 190,476
<SECURITIES> 0
<RECEIVABLES> 179,476
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 369,943
<PP&E> 4,865,262
<DEPRECIATION> 2,575,864
<TOTAL-ASSETS> 2,289,398
<CURRENT-LIABILITIES> 740,821
<BONDS> 0
<COMMON> 86,990
0
2,875
<OTHER-SE> 1,624,515
<TOTAL-LIABILITY-AND-EQUITY> 2,671,393
<SALES> 139,592
<TOTAL-REVENUES> 203,186
<CGS> 218,080
<TOTAL-COSTS> 638,040
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,253
<INCOME-PRETAX> (489,107)
<INCOME-TAX> 0
<INCOME-CONTINUING> (489,107)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (489,107)
<EPS-BASIC> (.06)
<EPS-DILUTED> (.06)
</TABLE>
