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 JUNE 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)
TEXAS 75-2455467
(State or other jurisdiction of
incorporation or organization) (IRS Employer Identification No.)
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 ____No __X___
State the number of shares outstanding of each of the issuer's classes of common
equity, as of August 13, 1999. 8,277,927
---------
Transitional Small Business Disclosure Format Yes _____No __X___
Page 1 of 8 pages contained in the sequential number system. The Exhibit Index
is on Page 7 of the sequential numbering system.
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<TABLE>
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PART I PAGE
<S> <C>
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 5
PART II
Item 1. Legal Proceedings 7
Item 2. Changes in Securities 7
Item 3. Defaults Upon Senior Securities 7
Item 4. Submission of Matters to a Vote of
Securities Holders 7
Item 5. Other Information 7
Item 6. Exhibits and Reports on Form 8-K 7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEET
June 30, 1999
ASSETS (Unaudited) December 31, 1998
- ---------------------------------------------------------------- ------------- -------------------
<S> <C> <C>
CURRENT ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,307 $ 721
Accounts receivable . . . . . . . . . . . . . . . .
Oil and gas sales . . . . . . . . . . . . . . . 28,675 43,188
Employee advances . . . . . . . . . . . . . . . 482 3,041
Other . . . . . . . . . . . . . . . . . . . . . 5,098 -
--------------- -------------
Total Current Assets. . . . . . . . . . . . . . . . . . . . . . . 36,562 46,950
PROPERTY AND EQUIPMENT
Oil and gas properties (full cost method):
Unproved leasehold costs. . . . . . . . . . . . . . . . . . . 307,618 179,609
Proved leasehold costs and well equipment . . . . . . . . . . 4,424,465 4,318,875
Less accumulated depreciation, depletion, and impairment. . . . . (2,532,102) (2,444,578)
--------------- --------------
Net property and equipment. . . . . . . . . . . . . . . . . 2,199,981 2,053,906
OTHER FURNITURE AND EQUIPMENT 9,894 8,346
DEPOSITS 3,281 3,281
--------------- --------------
TOTAL ASSETS $ 2,249,718 $ 2,112,483
================ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------
CURRENT LIABILITIES
Current portion of long-term, debt, including related parties . . $ 476,073 $ 411,043
Accounts payable and accrued expenses . . . . . . . . . . . . . . 223,389 141,740
Oil and gas revenues payable. . . . . . . . . . . . . . . . . . . 16,470 8,962
Due to stockholders . . . . . . . . . . . . . . . . . . . . . . . 17,981 21,731
--------------- ---------------
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . 733,913 583,476
LONG-TERM DEBT, net of current portion, including related parties 144,477 141,760
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY.
Common stock, $0.01 par value; 20,000,000 shares authorized;
8,112,927 and 7,625,353 shares issued and outstanding,
respectively 81,129 76,254
Series A convertible preferred stock, no par value, $575,000
liquidation preference. . . . . . . . . . . . . . . . . . . . . . 43,168 43,168
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . 5,245,439 4,987,884
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . (74,061) (74,061)
Obligation to repurchase treasury stock . . . . . . . . . . . . . (11,875) (11,875)
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . (3,912,472) (3,634,123)
--------------- -----------
Total Stockholders' Equity. . . . . . . . . . . . . . . . . . . . 1,371,328 1,387,247
--------------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,249,718 $ 2,112,483
---------------------------------------------- =============== ============
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF OPERATIONS AND COMPREYHENSIVE INCOME
Six Months Ended Three Months Ended
----------------- -------------------
June 30, June 30,
------------ ------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
- --------------------------------------- ------------ ------------ ------------ -----------
REVENUE:
Oil and gas sales . . . . . . . . . . . $ 88,249 $ 68,926 $ 41,873 $ 65,617
COSTS AND EXPENSES:
Production expense. . . . . . . . . . . 32,368 21,777 11,718 20,585
Depletion and depreciation. . . . . . . 89,668 18,291 44,885 17,112
General and administrative. . . . . . . 231,095 248,457 124,437 142,917
------------ ------------ ------------ -----------
Total costs and expenses. . . . . . . . 353,132 288,525 181,041 180,614
OTHER INCOME (EXPENSE):
Dividend income . . . . . . . . . . . . 0 22,500 0 11,250
Consulting income. . . . . . . . . . . 945 2,930 0 2,930
Other income. . . . . . . . . . . . . . 25,148 5,276 30 4,157
Interest expense. . . . . . . . . . . . (39,560) (18,290) (16,885) (16,840)
------------ ------------ ------------ -----------
Total other income (expense). . . . . . (13,466) 12,416 (16,855) 1,497
------------ ------------ ------------ -----------
NET LOSS. . . . . . . . . . . . . . . . (278,349) (207,184) $ (156,023) $ (113,500)
============ ============ ============ ===========
BASIC AND DILUTED NET LOSS PER SHARE:. $ (.03) $ (.03) $ (.02) $ (.02)
============ ============ ============ ===========
WEIGHTED AVERAGE SHARES OUTSTANDING . . 7,993,021 6,166,313 8,155,092 6,472,849
============ ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
Six Months Ended
June 30, 1999
(Unaudited)
--------------
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (278,349)
Adjustments to reconcile net loss to net cash from operating activities:
Depletion, depreciation and impairment. . . . . . . . . . . . . . . . . . . . . . 89,668
Common stock, warrants and options issued for services. . . . . . . . . . . . . . 11,910
Changes in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,072
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,098)
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . 81,649
Oil and gas revenues payable. . . . . . . . . . . . . . . . . . . . . . . . . . . 7,508
Due to related parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,750)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,128)
--------------
Net cash used by operating activities . . . . . . . . . . . . . . . . . . . . . . (92,518)
--------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of oil and gas properties. . . . . . . . . . . . . . . . . . . . . . . . (233,599)
Purchase of other property & equipment. . . . . . . . . . . . . . . . . . . . . . -
--------------
Net cash (used) provided by investing activities. . . . . . . . . . . . . . . . . (233,599)
--------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . 42,784
Repayments of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . (85,437)
Proceeds from sales of common stock . . . . . . . . . . . . . . . . . . . . . . . 170,356
Proceeds from sale of preferred stock . . . . . . . . . . . . . . . . . . . . . . -
--------------
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . 327,703
--------------
NET INCREASE IN CASH. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,586
CASH, beginning of the period . . . . . . . . . . . . . . . . . . . . . . . . . . 721
--------------
CASH, end of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,307
==============
SUPPLEMENTAL INFORMATION:
Cash paid during the year for interest . . . . . . . . . . . . . . . . . . . . . 8,622
==============
NON-CASH INVESTING AND FINANCING ACTIVITY:
Purchase of oil and gas properties with equity securities, including convertible
notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -
==============
Unamortized portion of notes payables discount. . . . . . . . . . . . . . . . . 2,474
==============
Conversion of Notes Payable into Common stock. . . . . . . . . . . . . . . . . . 92,074
==============
Purchase of furniture and equipment with notes payable . . . . . . . . . . . . . 3,691
==============
June 30, 1998
(Unaudited)
-------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (207,184)
Adjustments to reconcile net loss to net cash from operating activities:
Depletion, depreciation and impairment. . . . . . . . . . . . . . . . . . . . . . 18,290
Common stock, warrants and options issued for services. . . . . . . . . . . . . . -
Changes in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (43,670)
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,642)
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . 47,093
Oil and gas revenues payable. . . . . . . . . . . . . . . . . . . . . . . . . . . -
Due to related parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (33,805)
-------------
Net cash used by operating activities . . . . . . . . . . . . . . . . . . . . . . (225,916)
-------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of oil and gas properties. . . . . . . . . . . . . . . . . . . . . . . . (68,827)
Purchase of other property & equipment. . . . . . . . . . . . . . . . . . . . . . -
-------------
Net cash (used) provided by investing activities. . . . . . . . . . . . . . . . . (68,827)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . 284,574
Repayments of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . -
Proceeds from sales of common stock . . . . . . . . . . . . . . . . . . . . . . . 76,712
Proceeds from sale of preferred stock . . . . . . . . . . . . . . . . . . . . . . -
-------------
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . 361,286
-------------
NET INCREASE IN CASH. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,543
CASH, beginning of the period . . . . . . . . . . . . . . . . . . . . . . . . . . 18,811
-------------
CASH, end of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,354
=============
SUPPLEMENTAL INFORMATION:
Cash paid during the year for interest . . . . . . . . . . . . . . . . . . . . . 18,290
=============
NON-CASH INVESTING AND FINANCING ACTIVITY:
Purchase of oil and gas properties with equity securities, including convertible
notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,700,700
=============
Unamortized portion of notes payables discount. . . . . . . . . . . . . . . . . -
=============
Conversion of Notes Payable into Common stock. . . . . . . . . . . . . . . . . . -
=============
Purchase of furniture and equipment with notes payable . . . . . . . . . . . . . -
=============
</TABLE>
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 6/30/99 vs. quarter ended 6/30/98
=====================================================
Oil and gas sales of $41,873 for the quarter ended June 30, 1999,
represented a decrease of $23,744 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 $181,041 for the quarter ended
June 30, 1999 are comparable to the 1998 quarter. General and administrative
expenses decreased between the two periods. Interest expense of $16,885 for the
three months ended June 30, 1999 is comparable to the quarter in 1998. The
decrease in other income resulted from a decrease in consulting and dividend
income during the quarter ended June 30, 1999. Total net loss of $156,023
represented an increase of $42,523 over the net loss for the comparable 1998
quarter due to the revenue and other income factors cited above.
Six months ended 6/30/99 vs. six months ended 6/30/98
=============================================================
Oil and gas sales of $88,249 during six months ended June 30, 1999
represented an increase of $19,323 over the comparable 1998 period. This
increase was due to the properties acquired in 1998 producing for both quarters
in 1999. Total expenses of $353,132 represented an increase of $64,607 for the
six months ended June 30, 1999 compared to the 1998 period. This increase was
due to a significantly higher depletion calculation. General and administrative
expenses decreased between the two periods. Interest expenses of $39,500 during
the six months ended June 30, 1999 was $21,270 higher than the 1998 period
resulting from additional borrowings to fund the Company's negative cash flow.
Other income decreased due to lower consulting income and dividend income in the
six months ended June 30, 1999. Total net loss of $278,349 represented an
increase of $71,165 over the comparable period in 1998 due to the factors cited
above.
Empiric announced on May 8, 1999 the participation in an exploratory well in the
United States Outer Continental Shelf, Gulf of Mexico. Vermilion Block 90 #1
was drilled to a depth of 9,054 ft. and plugged and abandoned. Three
prospective sands were present in the well and contained gas, but no in
commercial quantities.
Empiric announced on June 28, 1999 the signing of a Letter of Intent for 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 1.8
million BOE, and the net probable "behind the pipe" reserves in the 3.0 million
3.0 million BOE range. A program to develop the "behind the pipe" reserves will
be commenced shortly.
The purchase price is $12.0 million, consisting of $9.5 million cash and 2.5
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.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
==================================
As of June 30, 1999, the Company had a net worth of $1,371,328 compared to
a net worth of $1,387,247 at December 31, 1998. This decrease is primarily due
to the losses in the six months ended June 30, 1999. There was a working
capital deficit of $697,351 at June 30, 1999 compared to $536,526 at December
31, 1998.
Effective June 25, 1999, the Company offered eight (8) units of $50,000,
each consisting of a $50,000 convertible secured note due in 24 months and
25,000 shares of Common stock in a Private Placement. The notes are convertible
to Common stock at $1.00 per share.
SUBSEQUENT EVENTS
==================
As of August 13, 1999, one of the eight units in the above Private
Placement had been sold. Also, 200,000 shares of Common stock were sold at
$0.50 per share.
On July 16, 1999, the Board of Directors accepted the resignation of Robert
L. Thomas due to a potential conflict of interest. The Directors issued a
resolution to Mr. Thomas thanking him for his service.
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. During the
second quarter, 5,000 shares of Common stock were issued as a fee for financing
activities and 61,500 shares of Common stock issued as a property purchase
contingency in 1997 were canceled.
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
5,000 shares of Common stock were issued and 61,500 shares of Common stock were
cancelled.
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
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
NONE
<PAGE>
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: August 13, 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
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 2307
<SECURITIES> 0
<RECEIVABLES> 34255
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 36562
<PP&E> 4732083
<DEPRECIATION> 2532102
<TOTAL-ASSETS> 2249718
<CURRENT-LIABILITIES> 733913
<BONDS> 0
<COMMON> 81129
0
43168
<OTHER-SE> 1247031
<TOTAL-LIABILITY-AND-EQUITY> 2249718
<SALES> 88249
<TOTAL-REVENUES> 88249
<CGS> 32638
<TOTAL-COSTS> 353132
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39560
<INCOME-PRETAX> (278349)
<INCOME-TAX> 0
<INCOME-CONTINUING> (278349)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
