UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the transition period from to.
Commission File No. 1-6336
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Petrominerals Corporation
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(Exact name of registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation or organization)
No. 95-2573652
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(I.R.S. Employer Identification No.)
27241 Burbank, Foothill Ranch, California 92610-2500
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(Address of principal executive offices)
(949) 588-2645
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(Registrant's telephone number, including area code)
Check whether the Registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities 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.
[ ] [X]
No Yes
The number of shares of Registrant's common stock outstanding at September 30,
2000 was 1,059,404.
1
PETROMINERALS CORPORATION
INDEX
Page
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PART I - FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements
Consolidated Balance Sheets September 30, 2000 and December 31, 1999 1
Consolidated Statements of Operations for the three and nine months
ended September 30, 2000 and 1999 . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows for the nine months ended
September 30, 2000 and 1999 . . . . . . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial Condition
Condition and Results of Operations . . . . . . . . . . . . . . . . 6
PART II - OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . 8
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2
PART I - FINANCIAL INFORMATION
3
ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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PETROMINERALS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value data)
(Unaudited)
ASSETS
September 30, 2000 December 31, 1999
------------------- ------------------
Current Assets
Cash and cash equivalents . . . . . . . . $ 1,727 $ 2,128
Accounts receivable, net. . . . . . . . . 78 54
Prepaid expenses. . . . . . . . . . . . . 10 31
------------------- ------------------
Total Current Assets. . . . . . . . . . . 1,815 2,213
Restricted Cash . . . . . . . . . . . . . . 25 25
Property and Equipment, net (including oil
and gas properties accounted for on the
successful efforts method) . . . . . . . . 668 355
Notes Receivable and Other Assets . . . . . 76 437
------------------- ------------------
Total Assets. . . . . . . . . . . . . . . $ 2,584 $ 3,030
=================== ==================
See accompanying notes to consolidated financial statements.
4
PETROMINERALS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value data)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, 2000 December 31, 1999
------------------- ------------------
Current Liabilities
Accounts payable. . . . . . . . . . . . . . . . $ 6 $ 157
Accrued liabilities . . . . . . . . . . . . . . 4 4
Royalties payable . . . . . . . . . . . . . . . 11 11
------------------- ------------------
Total Current Liabilities . . . . . . . . . . 21 172
Prepetition Liabilities . . . . . . . . . . . . . 448 448
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Total Liabilities . . . . . . . . . . . . . . . 469 620
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Stockholders' Equity
Preferred stock:
$.10 par value, 2,900,000 shares authorized;
no shares issued and outstanding. . . . . . . - -
Common stock:
$.08 par value, 20,000,000 shares authorized;
1,059,404 shares issued and outstanding at
June 30, 2000 and December 31, 1999,
respectively . . . . . . . . . . . . . . . . . . 848 848
Capital in Excess of Par Value. . . . . . . . . . 563 563
Retained Earnings . . . . . . . . . . . . . . . . 704 999
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Total Stockholders' Equity. . . . . . . . . . . 2,115 2,410
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Total Liabilities and Stockholders' Equity. . . $ 2,584 $ 3,030
=================== ==================
See accompanying notes to consolidated financial statements.
5
PETROMINERALS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
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2000 1999 2000 1999
---------------------------- --------------------------- ------- -------
Revenues
Oil and gas. . . . . . . . . $ 86 $ 91 $ 258 $ 169
Other income . . . . . . . . 26 37 93 93
---------------------------- --------------------------- ------- -------
Total Revenues . . . . . . . . 112 128 351 262
---------------------------- --------------------------- ------- -------
Costs and Expenses
Oil and gas. . . . . . . . . 73 55 271 159
Depreciation, depletion
and amortization . . . . . - 1 2 3
General and administrative . 107 131 346 284
Other expense. . . . . . . . 20 35 27 42
---------------------------- --------------------------- ------- -------
Total Costs and Expenses . . . 200 222 646 488
---------------------------- --------------------------- ------- -------
Loss from continuing
operations . . . . . . . . . (88) (94) (295) (226)
Discontinued operations loss
from operation of dis-
continued subsidiary,
Hydro-Test Int'l, Inc. . . . - - - (30)
---------------------------- --------------------------- ------- -------
Net Loss . . . . . . . . . . . $ (88) $ (94) $ (295) $ (256)
============================ =========================== ======= =======
Net loss per share, continuing
operations . . . . . . . . . $ (0.08) $ (0.09) $(0.28) $(0.21)
============================ =========================== ======= =======
Net loss per share . . . . . . $ (0.08) $ (0.09) $(0.28) $(0.24)
============================ =========================== ======= =======
Weighted average common
shares outstanding . . . . . 1,059 1,059 1,059 1,059
============================ =========================== ======= =======
See accompanying notes to consolidated financial statements.
6
PETROMINERALS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the Nine Months Ended
September 30,
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2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss . . . . . . . . . . . . . . . . . . . $ (295) $ (256)
Adjustments to reconcile net loss
to net cash used from operating activities:
Depreciation, depletion and amortization . . 2 3
Changes in operating working capital:
(Increase) Decrease in accounts receivable . (24) 30
Decrease in prepaid. . . . . . . . . . . . . 21 29
(Decrease) in accounts payable . . . . . . . (151) (57)
(Decrease) in accrued liabilities. . . . . . - (42)
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Net Cash Used by Operating Activities. . . . . . (447) (353)
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CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures . . . . . . . . . . . . . (315) (224)
Collection from notes receivable . . . . . . . 361 13
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Net Cash Used by Investing Activities. . . . . . 46 (211)
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Net Decrease in Cash and Cash Equivalents. . . . (401) (564)
Cash and Cash Equivalents at beginning of period 2,153 2,953
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Cash and Cash Equivalents at end of period . . . $ 1,752 $2,389
=========================== =======
See accompanying notes to consolidated financial statements.
7
PETROMINERALS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
-----------------------
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of results for the interim periods. The results of operations for the
nine-month period ended September 30, 2000 are not necessarily indicative of the
results to be expected for the full year.
The accompanying consolidated financial statements do not include footnotes and
certain financial presentations normally required under generally accepted
accounting principles; and, therefore, should be read in conjunction with the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1999.
Certain reclassifications have been made to the 1999 financial statements to
conform to the presentation used in 2000.
NOTE 2 - PER SHARE COMPUTATIONS
------------------------
Per share computations are based upon the weighted average number of common
shares outstanding during each year. Common stock equivalents are not included
in the computations since their effect would be anti-dilutive.
8
ITEM 2 - MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS
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FINANCIAL CONDITION
- --------------------
As discussed in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1999, the Company had sold substantially all of its oil and gas
properties in 1998 to an unrelated party. The Company did retain an interest in
two small oil properties and has subsequently completed an acquisition of a 25%
interest in a Wyoming gas field. The Company had a negative cash flow of
approximately $401,000 for the nine months ended September 30, 2000, compared to
a negative cash flow of approximately $564,000 for the nine months ended
September 30, 1999. The current period negative cash flow is mainly resulting
from normal general and administrative costs for the nine months with marginal
production activities.
Nine months ended September 30, 2000 as compared with the nine months ended
- --------------------------------------------------------------------------------
September 30, 1999
- --------------------
With oil prices in the first nine months of 2000 nearly double of those received
in the first nine months of 1999 and the addition of the Wyoming properties, the
company has recorded revenues of $258,000 for the nine months ended September
30, 2000 versus $169,000 for the same period in 1999. Net realized oil prices
increased from $10.51 per barrel for the nine months ended September 30, 1999 to
$25.11 for the same period in 2000. Due to remedial work on both the Wyoming
and California properties, operating expenses increased to $271,000 for the nine
months ended September 30, 2000 versus $159,000 for the same period in 1999.
With the addition of a new officer to implement the company's growth strategy,
general and administrative expenses increased to $346,000 for the nine months
ended September 30, 2000 versus $284,000 for the same period in 1999. As a
result, a net loss increased from $256,000 for the first nine months of 1999 to
$295,000 for the same period in 2000.
BUSINESS REVIEW
- ----------------
Oil and Gas Segment
- ----------------------
As discussed in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1999, the Company had sold substantially all of its oil and gas
properties in 1998 to an unrelated party. In 1999, the company initiated a
process to use the proceeds to either purchase additional oil and gas producing
assets or merge with another company. As a result of this process the Company
completed the acquisition of a 25% interest in the Smith Ranch natural gas field
located in southwest Wyoming for approximately $102,000 in cash in September
1999. During the first six months of 2000, management reviewed merger
alternatives as well as focusing efforts to utilize its cash balance for the
acquisition of additional oil and gas producing properties. However, with the
termination of the Hillcrest Beverly transaction (see below), management plans
to refocus its efforts on locating an appropriate merger candidate that would
bring the critical mass of assets necessary to successfully compete as an
independent producer.
9
ITEM 2 - MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS (Continued)
---------------------------------------
Wyoming Venture
- ----------------
On September 20, 1999 the Company completed the acquisition of a 25% interest in
the Smith Ranch natural gas field located in southwest Wyoming. Current
production from the two active gas wells is 300 thousand cubic feet per day (65
mcfd net). The company participated in the drilling of a gas well in the 3rd
quarter of 1999 and that well was completed in a Lewis Sandstone interval in the
first quarter of 2000. Due to completion problems, that well was re-completed
to an Upper Fort Union sand interval. As of June 30, 2000, this well was
shut-in due to excessive water production. The operator's plans to test either
the Ft. Union coal or Wasatch sand during the third quarter have been extended
into the fourth quarter. The company drilled an additional well in the 2nd
quarter of this year that was completed in the Wasatch sand and is still being
tested. As discussed in the first quarter 2000 10QSB, the company is continuing
its evaluation of the potential for a coal bed methane development project on
its acreage. The company with its partners are negotiating with third parties
for a development program that will be mutually advantageous.
Santa Clarita Area
- --------------------
As a result of the 1998 sale, the company retained a 53% working interest in the
Castaic Hills Unit, a 100% working interest in a nearby oil well and an 83.3%
working interest in 2 producing oil wells in the nearby Hasley Canyon field.
Current net production from the 11 active wells on these leases is approximately
57 barrels per day (bopd). With oil prices at historically high levels, the
operator has initiated a program of returning wells to production and
enhancement of the water disposal activities.
In addition to the retained working interest, the company reserved a production
payment of $931,000. This payment is paid in installments in any month that
certain posted prices for oil produced exceeds $13.50 per barrel. The monthly
payment is equal to one-half of the difference between the weighted average
posted price and $13.50, multiplied by the number of barrels produced. Posted
prices for the first nine months averaged $23.52 per barrel. Third quarter
revenue from this note was approximately $100,000 and is reflected in the
consolidated statements of cash flows as a reduction of Notes receivable.
Hillcrest Beverly Oil Corporation Acquisition
- -------------------------------------------------
On March 10, 2000, the company signed a non-binding letter of intent to purchase
100% of the outstanding stock of Hillcrest Beverly Oil Corporation (HBOC) from a
private Nevada corporation. Subsequent to the end of the second quarter, the
company notified the seller that it would not continue its pursuit of this
acquisition because the seller was unable to fulfill certain obligations and
representations.
10
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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The Company is not a party to nor is its property the subject of any material
legal proceedings other than ordinary routine litigation incidental to its
business, or which is covered by insurance, except as previously disclosed in
the Company's Annual Report on Form 10-KSB for the year ended December 31, 1999
and the following.
An action was filed against the Company in California, along with Morris V.
Hodges, Daniel H. Silverman ("Silverman"), Nevadacor Energy, Inc. ("Nevadacor"),
Kaymor Petroleum Products, and Hillcrest Beverly Oil Corporation ("HBOC"), as
defendants by Sole Energy Company ("Sole") as plaintiff. The complaint alleges
that the defendants, and each of them, interfered with Sole's contractual
relationship and prospective economic advantage. The crux of this matter issued
out of letter of intent negotiations between Sole and Nevadacor on the purchase
of HBOC. Nevadacor terminated these negotiations prior to Company's offer to
purchase HBOC from Nevadacor. However and notwithstanding the termination by
Nevadacor, Sole joined the Company and Silverman as defendants in this suit.
As Company had been assured that negotiations between Sole and Nevadacor were
over, Company entered into a letter of intent agreement with Nevadacor for the
purchase of HBOC. These negotiations were interrupted by the lawsuit filed by
Sole and Company terminated its agreement with Nevadacor.
The Company had, previously, reported that this lawsuit was the subject of
settlement discussions between HBOC, Nevadacor and Sole; however, since then all
negotiation for settlement has failed.
The Company believes that the allegations against the Company and Silverman have
no substance or merit and intends to vigorously defend the suit. The Company
does not expect the effect, if any, of the outcome of this litigation to be
material to the Company's financial condition. Further because of the damage
caused to Company's economic advantage because of interference by Sole in
Company's agreement for purchase, the Company intends to pursue all remedies
available to it from Sole and its principals.
ITEM 2. CHANGES IN SECURITIES
-----------------------
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
----------------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None.
11
ITEM 5. OTHER INFORMATION
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After meeting to discuss strategic plans and future alternatives, the Company
and Daniel H. Silverman by mutual agreement decided to end their relationship
effective October 1, 2000, allowing each to explore other alternatives and
alternative directions. It is anticipated that management will continue to use
Mr. Silverman's services in evaluating acquisition prospects, but as a
consultant and on a project-by-project basis.
In order to reduce overhead, the corporate Office in Houston, Texas, was closed
and the related costs of maintenance were eliminated.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
-------------------------------------
(a) Exhibits - none.
(b) Reports on Form 8-K - none.
12
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PETROMINERALS CORPORATION
- --------------------------
(Registrant)
/s/ Morris V. Hodges
- -----------------------
Morris V. Hodges, President,
CEO & Chief Financial Officer