FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from to
Commission file number 1-12108
GULFWEST ENERGY INC.
--------------------
(Exact name of Registrant as specified in its charter)
Texas 87-0444770
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
397 North Sam Houston Parkway East
Suite 375
Houston, Texas 77060
(Address of principal executive offices) (zip code)
(281) 820-1919
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(D) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO ____
The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date, August 3, 2001, was 18,462,541 shares
of Class A Common Stock, $.001 par value.
GULFWEST ENERGY INC.
FORM 10-Q FOR THE QUARTER ENDED
JUNE 30, 2001
Page of
Form 10-Q
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Part I: Financial Statements
Item 1. Financial Statements
Consolidated Balance Sheets, June 30, 2001
and December 31, 2000 3
Consolidated Statements of Operations-for the three
months and six months ended June 30, 2001, and 2000 5
Consolidated Statements of Cash Flows-for the six
months ended June 30, 2001, and 2000 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8
Part II: Other Information
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on 8-K 11
Signatures 12
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
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GULFWEST ENERGY INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001 AND DECEMBER 31, 2000
(UNAUDITED)
ASSETS
June 30, December 31,
2001 2000
---------------------- ----------------------
CURRENT ASSETS:
Cash and cash equivalents $ 564,331 $ 663,032
Accounts Receivable - trade, net of allowance for doubtful
accounts of -0- in 2001 and 2000 2,057,938 2,188,421
Prepaid expenses 225,028 83,351
---------------------- ----------------------
Total current assets 2,847,297 2,934,804
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OIL AND GAS PROPERTIES,
Using the successful efforts method of accounting 32,955,246 30,895,049
OTHER PROPERTY AND EQUIPMENT 2,301,888 1,961,203
Less accumulated depreciation, depletion
And amortization (4,927,355) (4,049,510)
---------------------- ----------------------
Net oil and gas properties, and
other property and equipment 30,329,779 28,806,742
---------------------- ----------------------
OTHER ASSETS
Deposits 27,638 27,638
Investments 122,785
Debt issue cost 417,901 482,159
---------------------- ----------------------
Total other assets 445,539 632,582
---------------------- ----------------------
TOTAL ASSETS $ 33,622,615 $ 32,374,128
====================== ======================
The Notes to Consolidated Financial Statements are an integral part of these statements.
3
GULFWEST ENERGY INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001 AND DECEMBER 31, 2000
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
2001 2000
--------------------- ---------------------
CURRENT LIABILITIES
Notes payable $ 2,717,357 $ 935,300
Notes payable - related parties 80,000 700,000
Current portion of long-term debt 3,597,073 3,111,120
Current portion of long-term debt - related parties 225,911 303,296
Accounts payable - trade 2,284,927 2,189,656
Accrued expenses 294,876 355,614
--------------------- ---------------------
Total current liabilities 9,200,144 7,594,986
--------------------- ---------------------
LONG-TERM DEBT, net of current portion 16,688,917 17,960,455
--------------------- ---------------------
LONG-TERM DEBT, RELATED PARTIES 264,583 116,916
--------------------- ---------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock
80 80
Common stock 18,463 18,445
Additional paid-in capital 23,550,132 23,537,900
Retained deficit (16,099,704) (16,854,654)
Long-term accounts and notes receivable - related
parties,net of allowance for doubtful accounts of
$740,478 in 2001 and 2000
--------------------- ---------------------
Total stockholders' equity 7,468,971 6,701,771
--------------------- ---------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 33,622,615 $ 32,374,128
===================== =====================
The Notes to Consolidated Financial Statements are an integral part of these statements.
4
GULFWEST ENERGY INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED
JUNE 30, 2001 AND 2000
(UNAUDITED)
Three Months Six Months
Ended June 30, Ended June 30,
2001 2000 2001 2000
----------------- ---------------- ---------------- -------------
OPERATING REVENUES
Oil and gas sales $ 3,304,912 $ 1,930,127 $ 6,264,665 $ 3,430,564
Well servicing revenues 77,934 97,251 81,964 171,261
Operating overhead and other income 73,036 96,699 166,992 140,708
----------------- ---------------- ---------------- -------------
Total operating revenues 3,455,882 2,124,077 6,513,621 3,742,533
----------------- ---------------- ---------------- -------------
OPERATING EXPENSES
Lease operating expenses 1,159,743 746,690 2,431,426 1,420,567
Cost of well servicing operations 59,744 95,884 83,356 183,330
Depreciation, depletion and amortization 594,522 299,368 1,043,073 481,439
General and administrative 422,871 377,841 805,980 744,678
----------------- ---------------- ---------------- -------------
Total operating expenses 2,236,880 1,519,783 4,363,835 2,830,014
----------------- ---------------- ---------------- -------------
INCOME FROM OPERATIONS 1,219,002 604,294 2,149,786 912,519
----------------- ---------------- ---------------- -------------
OTHER INCOME AND EXPENSE
Interest Income 15,247 15,247
Interest expense (605,091) (538,855) (1,286,208) (922,235)
Gain (loss) on sale of assets (105,974) 1,500 (108,628) 6,327
----------------- ---------------- ---------------- -------------
Total other income and expense (711,065) (522,108) (1,394,836) (900,661)
----------------- ---------------- ---------------- -------------
INCOME BEFORE INCOME TAXES 507,937 82,186 754,950 11,858
INCOME TAXES
----------------- ---------------- ---------------- -------------
NET INCOME $ 507,937 $ 82,186 $ 754,950 $ 11,858
================= ================ ================ =============
INCOME PER COMMON SHARE -
BASIC AND DILUTED $ .03 $ .00 $ .04 $ .00
================= ================ ================ =============
The Notes to Consolidated Financial Statements are an integral part of these statements.
5
GULFWEST ENERGY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(UNAUDITED)
2001 2000
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 754,950 $ 11,858
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation, depletion, and amortization 1,043,073 481,439
Common stock and warrants issued and charged to operations 13,600
Loss (Gain) on sale of assets 108,628 (6,327)
Other non-operating (income) (5,780)
(Increase) decrease in accounts receivable - trade, net 425,752 (925,135)
(Increase) decrease in prepaid expenses (141,677) 29,793
Increase (decrease) in accounts payable and accrued expenses 34,533 1,006,862
---------------- ----------------
Net cash provided by operating activities 2,225,259 606,310
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 62,423 9,250
Purchase of property and equipment (2,626,758) (2,026,327)
---------------- ----------------
Net cash used in investing activities (2,564,335) (2,017,077)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in non-operating receivables 50,000
Proceeds from subscription of common stock 557,878
Payments on debt (2,950,346) (603,071)
Proceeds from debt issuance 3,199,801 1,739,510
Debt issue cost (9,080) (315,342)
---------------- ----------------
Net cash provided by financing activities 240,375 1,428,975
---------------- ----------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (98,701) 18,208
CASH AND CASH EQUIVALENTS, beginning of period 663,032 287,300
---------------- ----------------
CASH AND CASH EQUIVALENTS, end of period $ 564,331 $ 305,508
================ ================
CASH PAID FOR INTEREST $ 605,091 $ 538,673
================ ================
The Notes to Consolidated Financial Statements are an integral part of these statements.
6
GULFWEST ENERGY INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2000 UNAUDITED)
1. During interim periods, we follow the accounting policies set forth in
our Annual Report on Form 10-K filed with the Securities and Exchange
Commission. Users of financial information produced for interim periods are
encouraged to refer to the footnotes contained in the Annual Report when
reviewing interim financial results.
2. The accompanying financial statements include the Company and its
wholly-owned subsidiaries: RigWest Well Service, Inc. formed September 5, 1996;
GulfWest Texas Company formed September 23, 1996; DutchWest Oil Company formed
July 28, 1997; Southeast Texas Oil and Gas Company, L.L.C. acquired September 1,
1998; SETEX Oil and Gas Company formed August 11, 1998; GulfWest Oil &
Gas Company formed February 8, 1999; LTW Pipeline Co. formed April 19, 1999;
and GulfWest Development Company ("GWD") formed November 9, 2000. All
material intercompany transactions and balances are eliminated upon
consolidation.
3. In management's opinion, the accompanying interim financial statements
contain all material adjustments, consisting only of normal recurring
adjustments necessary to present fairly the financial condition, the results of
operations, and the statements of cash flows of GulfWest Energy Inc. for the
interim periods.
4. Non-cash Investing and Financing
During the six month period ended June 30, 2001, we acquired $209,549 in
property and equipment through $197,299 in notes payable to financial
institutions and related parties, and by issuing 17,500 shares of common stock
valued at $12,250. Also, we sold $440,300 in property and equipment, net of
depletion and depreciation, in exchange of $325,000 in accounts receivable.
These receivables were collected on August 1, 2001.
5. We entered into an agreement with an energy lender, commencing in May
2000, to hedge a portion of our oil and gas sales for the period of May 2000
through April 2004. The agreement calls for initial volumes of 7,900 barrels of
oil and 52,400 Mcf of gas per month, declining monthly thereafter. As a result
of this agreement, we realized a reduction in revenues of $1,044,349 for the
six-month period ended June 30, 2001, which is included in oil and gas sales.
6. During the second quarter of 2001, we secured a $2,500,000 line of
credit from a bank, guaranteed by two of our directors. The line of credit bears
interest at the prime rate less one fourth of one percent and is due May 1,
2002. $2,100,000 of the line was used to retire existing debt and pay down
accounts payable. The remainder will be used for the development of our oil and
natural gas properties.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
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OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Overview
--------
We are engaged primarily in the acquisition, development, exploitation,
exploration and production of crude oil and natural gas. Our focus is on
increasing production from our existing crude oil and natural gas properties
through the further exploitation, development and optimization of those
properties, and on acquiring additional crude oil and natural gas properties.
Our gross revenues are derived from the following sources:
1. Oil and gas sales that are proceeds from the sale of crude oil and
natural gas production to midstream purchasers;
2. Operating overhead and other income that consists of earnings from
operating crude oil and natural gas properties for other working
interest owners, and marketing and transporting natural gas. This also
includes earnings from other miscellaneous activities.
3. Well servicing revenues that are earnings from the operation of well
servicing equipment under contract to third party operators.
Results of Operations
---------------------
The factors which most significantly affect our results of operations are
(1) the sales price of crude oil and natural gas, (2) the level of total sales
volumes of crude oil and natural gas, (3) the level of and interest rates on
borrowings and, (4) the level and success of new acquisitions and development of
existing properties.
Comparative results of operations for the periods indicated are discussed below.
Three-Month Period Ended June 30, 2001 compared to Three Month Period Ended
June 30, 2000.
Revenues
Oil and Gas Sales. Revenues from the sale of crude oil and natural gas for
the quarter increased 71% from $1,930,100 in 2000 to $3,304,900 in 2001. This
was due to increased oil and gas production as a result of our development
activities, higher oil and gas prices and acquisitions of additional properties.
Well Servicing Revenues. Revenues from well servicing operations decreased
by 20% from $97,300 in 2000 to $77,900 in 2001. We had greater utilization of
our rigs in the development of our properties rather than working for third
parties in 2001 compared to 2000.
Operating Overhead and Other Income. Revenues from these activities
decreased 25% from $96,700 in 2000 to $73,000 in 2001.
8
Costs and Expenses
Lease Operating Expenses. Lease operating expenses increased 55% from
$746,700 in 2000 to $1,159,700 in 2001. This was primarily due to the
acquisition of additional properties and increased costs related to greater oil
and gas production; and, to a lesser extent, higher vendor and contractor costs,
as well as additional field activity to increase production on existing and
acquired properties under the favorable product price environment.
Cost of Well Servicing Operations. Well servicing expenses decreased 38%
from $95,900 in 2000 to $59,700 in 2001. We had greater utilization of our rigs
in the development of our properties rather than working for third parties in
2001 compared to 2000.
Depreciation, Depletion and Amortization (DD&A). DD&A increased
99% from $299,400 in 2000 to $594,500 in 2001, due to significantly higher
production as a result of successful field development activities and
acquisitions.
General and Administrative (G&A) Expenses. G&A expenses increased
12% for the period from $377,800 in 2000 to $422,900 in 2001, due to expenses
associated with an increase in the number of oil and natural gas assets that we
manage.
Interest Expense. Interest expense increased 12% from $538,900 in 2000 to
$605,100 in 2001, primarily due to interest on debt associated with additional
acquisitions and our capital development program.
Six-Month Period Ended June 30, 2001 compared to Six-Month Period Ended
June 30, 2000.
Revenues
Oil and Gas Sales. Revenues from the sale of crude oil and natural gas for
the period increased 83% from $3,430,600 in 2000 to $6,264,700 in 2001. This was
due to increased oil and gas production from development projects, higher oil
and gas prices, and acquisitions of additional properties.
Well Servicing Revenues. Revenues from well servicing operations decreased
by 52% from $171,300 in 2000 to $82,000 in 2001. We had greater utilization of
our rigs in the development of our properties rather than working for third
parties in 2001 compared to 2000.
Operating Overhead and Other Income. Revenues from these activities
increased 19% from $140,700 in 2000 to $167,000 in 2001.
Costs and Expenses
Lease Operating Expenses. Lease operating expenses increased 71% from
$1,420,600 in 2000 to $2,431,400 in 2001, due to the acquisitions of additional
properties, greater oil and gas production, and the costs related to such
production.
9
Cost of Well Servicing Operations. Well servicing expenses decreased 55%
from $183,300 in 2000 to $83,400 in 2001. This was due to higher rig utilization
on properties where we have 100% working interest and less on working for third
parties.
Depreciation, Depletion and Amortization (DD&A). DD&A increased
117% from $481,400 in 2000 to $1,043,100 in 2001, due to significantly higher
production resulting from successful field development activities and
acquisitions.
General and Administrative (G&A) Expenses. G&A expenses
increased 8% for the period from $744,700 in 2000 to $ 806,000 in 2001.
Interest Expense. Interest expense increased 39% from $922,200 in 2000 to
$1,286,200 in 2001, due to debt associated with additional acquisitions and our
capital development program.
Financial Condition and Capital Resources
-----------------------------------------
At June 30, 2001, our current liabilities exceeded our current assets by
$6,352,800. We had a profit of $507,900 for the quarter compared to a profit of
$82,200 for the period in 2000. The increased profit was a result of
significantly increased production and higher oil and natural gas prices.
During the second quarter of 2001, we sold 71,647 barrels of crude oil and
406,288 Mcf of natural gas compared to 40,645 barrels of crude oil and 285,636
Mcf of natural gas in the second quarter of 2000. Revenue for crude oil sales
for the quarter was $1,729,700 in 2001 compared to $1,020,100 in 2000 and for
natural gas sales was $1,575,300 in 2001 compared to $910,000 in 2000.
On June 29, 2001, we entered into a letter of intent to purchase several
oil and natural gas properties located in four fields in Texas and Louisiana.
The effective date of the acquisition will be July 1, 2001 and the closing is
scheduled for early August. The acquisition will result in an increase in the
company's year-end 2000 proved reserves by approximately 20%, as well as provide
additional acreage for development. The acquired properties are currently
producing an aggregate 600 barrels of oil and 1,200 Mcf of natural gas per day,
with total proved reserves (net to the acquired interests) estimated at 1.1
million barrels of oil and 5.5 billion cubic feet of natural gas. There are
additional possible reserves estimated at 10 billion cubic feet of natural gas.
The purchase price of the acquisition is $14.5 million in a combination of cash
and preferred stock. Financing is being arranged through an existing credit
facility and will include expanding the company's current line to continue the
development of its properties through the year 2002.
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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The annual meeting of shareholders was held on May 18, 2001, at which the
following proposals were considered and acted upon: first, to consider the
election of seven persons to the board of directors of the Company (the
"Board"); second, to consider the amendment of the Company's Articles of
Incorporation to change the name of the Company to "GulfWest Energy Inc.";
third, to consider the amendment and restatement of the Company's 1994 Stock
Option and Compensation Plan, with an effective date of April 1, 2001; and, last
to transact such other business as may properly come before the meeting. Of the
18,445,041 outstanding shares of Common Stock, there were present, in person or
by proxy, shareholders holding a total of 15,083,800 (81.8%) of the shares.
Seven candidates for director were presented by the Board: Marshall A.
Smith III, Thomas R. Kaetzer, J. Virgil Waggoner, John E. Loehr, Jim C. Bigham,
Anthony P. Towell, and Steven M. Morris. Of the 15,083,800 shares of Common
Stock present in person or by proxy and entitled to be voted at the meeting,
15,077,465 votes were cast for each of the nominees for director of the
Corporation (except for Mr. Bigham for whom 400 of those votes were withheld).
All seven candidates were declared duly and validly elected members of the
Board, each to serve until the next annual meeting of shareholders or until his
respective successor has been elected and qualified.
Of 15,083,800 shares of Common Stock present in person or by proxy and
entitled to be voted at the meeting, 15,080,600 votes were cast for approval of
the amendment to change the name of the Company to "GulfWest Energy Inc." and
the amendment was declared approved.
Regarding the third proposal to amend and restate the Company's 1994 Stock
Option and Compensation Plan, brokers did not have discretionary voting power on
the proposal and therefore only reported proxies actually received from
shareholders. Of 12,188,932 shares present in person or by proxy and entitled to
be voted on the proposal, 12,076,256 votes were cast for approval. The amendment
and restatement of the Company's 1994 Stock Option and Compensation Plan, with
an effective date of April 1, 2001, was declared approved.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
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(a) Exhibits -
Number Description
------ -----------
*3.1 Articles of Incorporation of the Registrant and
Amendments thereto.
#3.2 Amendment to the Articles of Incorporation of the
Registrant changing the name of the Registrant
to "GulfWest Energy Inc.", approved by the
Shareholders on May 18, 2001 and filed with the
Secretary of Texas on May 21, 2001.
11
&3.3 Amendment to the Company's Articles of
Incorporation to increase the number of shares of
Class A Common Stock that the Company will have
authority to issue from 20,000,000 to 40,000,000
shares, approved by the Shareholders on November
19, 1999 and filed with the Secretary of State of
Texas on December 3, 1999.
*3.4 Bylaws of the Registrant.
#10.1 GulfWest Oil Company 1994 Stock Option and
Compensation Plan, amended and restated as of
April 1, 2001, and approved by the shareholders on
May 18, 2001.
---------------
* Previously filed with the Registrant's Registration
Statement (on Form S-1, Reg. No. 33-53526),
filed with the Commission on October 21, 1992.
# Previously filed with the Registrant's Definitive
Proxy Statement, filed with the Commission on
April 16, 2001.
& Previously filed with the Registrant's Definitive
Proxy Statement, filed with the Commission on
October 18, 1999.
SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GULFWEST ENERGY INC.
(Registrant)
Date: August 3, 2001 By: /s/ Thomas R. Kaetzer
----------------------------------------
Thomas R. Kaetzer
President
Date: August 3, 2001 By: /s/ Jim C. Bigham
------------------------------------------
Jim C. Bigham
Executive Vice President and Secretary
Date: August 3, 2001 By: /s/ Richard L. Creel
-------------------------------------------
Richard L. Creel
Vice President of Finance
12