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, 1999
[ ] 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 No. 95-2573652
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) 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,
1999 was 1,059,417.
1
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, December 31,
1999 1998
------ ------
Current Assets
Cash and cash equivalents . . . . . . . . $2,364 $2,928
Accounts receivable, net . . . . . . . . . 38 8
Prepaid expenses . . . . . . . . . . . . . 23 52
------ ------
Total Current Assets. . . . . . . . . . . 2,425 2,988
Restricted Cash . . . . . . . . . . . . . . 25 25
Property and Equipment, net (including oil
and gas properties accounted for on the
successful efforts method) . . . . . . . . 350 129
Notes Receivable and Other Assets . . . . . 404 417
------ ------
Total Assets. . . . . . . . . . . . . . . $3,204 $3,559
====== ======
The accompanying notes are an integral part of these financial statements.
2
PETROMINERALS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value data)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
1999 1998
------ ------
Current Liabilities
Accounts payable . . . . . . . . . . . . . . $ 76 $ 133
Accrued liabilities . . . . . . . . . . . . . 2 44
Royalties payable . . . . . . . . . . . . . . 11 11
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Total Current Liabilities. . . . . . . . . . 89 188
Prepetition liabilities. . . . . . . . . . . . 448 448
------ ------
Total Liabilities. . . . . . . . . . . . . . 537 636
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Stockholders' Equity
Preferred stock:
$.10 par value, 5,000,000 shares authorized;
no shares issued and outstanding. . . . . . . - -
Common stock:
$.10 par value, 20,000,000 shares authorized;
1,059,417 shares issued and outstanding at
September 30, 1999 and December 31, 1998,
respectively. . . . . . . . . . . . . . . . . 848 848
Capital in Excess of Par Value . . . . . . . . 563 563
Retained Earnings. . . . . . . . . . . . . . . 1,256 1,512
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Total Stockholders' Equity . . . . . . . . . 2,667 2,923
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Total Liabilities and Stockholders' Equity . $3,204 $3,559
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The accompanying notes are an integral part of these financial statements.
3
PETROMINERALS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
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1999 1998 1999 1998
------- ------- ------- -------
REVENUES
Oil and gas . . . . . . . . . . . . . . . $ 91 $ 44 $ 169 $ 178
Other income . . . . . . . . . . . . . . . 37 46 93 155
------- ------- ------- -------
Total Revenues. . . . . . . . . . . . . . 128 90 262 333
------- ------- ------- -------
COSTS AND EXPENSES
Oil and gas . . . . . . . . . . . . . . . 55 105 159 283
Depreciation, depletion and amortization . 1 3 3 36
General and administrative . . . . . . . . 131 122 284 392
Interest . . . . . . . . . . . . . . . . . - - - 2
Other expense. . . . . . . . . . . . . . . 35 3 42 22
------- ------- ------- -------
Total Costs and Expenses . . . . . . . . . 222 223 488 735
------- ------- ------- -------
Net Loss from Operations. . . . . . . . . . (94) (143) (226) (402)
Gain on sale of fixed asset . . . . . . . . - - - 1,685
------- ------- ------- -------
Income (loss) from continuing operations. . (94) (143) (226) 1,283
Discontinued Operations
Loss from operations of discontinued
subsidiary, Hydro-Test International, Inc.. - (18) (30) (45)
------- ------- ------- -------
Net Income (Loss) . . . . . . . . . . . . . $ (94) $ (161) $ (256) $1,238
======= ======= ======= =======
Net income (loss) per share, continuing
operations . . . . . . . . . . . . . . . . $ (.09) $ (.14) $ (.21) $ 1.21
======= ======= ======= =======
Net income (loss) per share . . . . . . . . $ (.09) $ (.15) $ (.24) $ 1.17
======= ======= ======= =======
Weighted Average Common Shares Outstanding. 1,059 1,059 1,059 1,059
======= ======= ======= =======
The accompanying notes are an integral part of these financial statements.
4
PETROMINERALS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the Nine Months
Ended September 30,
-------------------
1999 1998
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Cash Flows from Operating Activities
Net income (loss) . . . . . . . . . . . . . . . . . $ (256) $ 1,238
Adjustments to reconcile net income (loss)
to net cash used from operating activities:
Depreciation, depletion and amortization. . . . 3 36
Gain on sale of fixed assets. . . . . . . . . . - (1,685)
Changes in operating working capital:
Accounts receivable . . . . . . . . . . . . . (30) 44
Prepaid . . . . . . . . . . . . . . . . . . . 29 (25)
Inventory . . . . . . . . . . . . . . . . . . - 50
Other assets. . . . . . . . . . . . . . . . . - (695)
Accounts payable. . . . . . . . . . . . . . . (57) 712
Royalties payable . . . . . . . . . . . . . . - (18)
Accrued liabilities . . . . . . . . . . . . . (42) (18)
Prepetition liabilities . . . . . . . . . . . - (68)
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Net Cash Used by Operating Activities . . . . . . . . (353) (429)
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Cash Flows from Investing Activities
Proceeds from sale of assets. . . . . . . . . . . . - 3,121
Capital expenditures. . . . . . . . . . . . . . . . (224) (117)
Note receivable . . . . . . . . . . . . . . . . . . 13 462
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Net Cash Provided (Used) by Investing Activities. . . (211) 3,466
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Cash Flows from Financing Activities
Principal payment of debt . . . . . . . . . . . . . - (11)
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Net (Decrease) Increase in Cash and Cash Equivalents. (564) 3,026
Cash and Cash Equivalents at beginning of period. . . 2,953 275
------- --------
Cash and Cash Equivalents at end of period. . . . . . $2,389 $ 3,301
======= ========
The accompanying notes are an integral part of these financial statements.
5
PETROMINERALS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
(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, 1999 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, 1998.
Certain reclassifications have been made to the 1998 financial statements to
conform to the presentation used in 1999.
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.
NOTE 3 - BANKRUPTCY/DISCONTINUED OPERATIONS
-----------------------------------
On June 8, 1999, the Company's wholly-owned subsidiary, Hydro-Test
International, Inc., filed a voluntary petition for Bankruptcy under Chapter 7
of the U.S. Bankruptcy Code with the U.S. Bankruptcy Court in the Southern
District of Texas. The creditor's meeting was held in July 1999. None of
Hydro-Test's creditors attended the meeting. In its Chapter 7 petition,
Hydro-Test indicated that it estimates funds will be available for distribution
to unsecured creditors. On May 16, 1996, Hydro-Test filed for relief under
Chapter 11 of the U.S. Bankruptcy Code. Hydro-Test International, Inc. has
discontinued its oilfield services, and a complete liquidation and dissolution
of this subsidiary and business segment is planned.
In late September 1999, the remaining assets of Hydro-Test, whose carrying value
was approximately $144,000, were sold by the bankruptcy trustee for cash. The
Company has not reflected the sale transaction at September 30, 1999 because the
accounting from the bankruptcy trustee was unavailable; however, the effect of
the transaction on the Company's balance sheet is not expected to be material.
6
ITEM 2 - MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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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, 1998, the Company has sold substantially all of its oil and gas
properties to an unrelated party. The Company has retained interests in two
small oil and gas properties. As a result of the sale, the Company only has
marginal revenues and expenses from the retained interests in certain oil and
gas properties for the nine months ended September 30, 1999. The Company had a
negative cash flow of approximately $564,000 for the nine months ended September
30, 1999, compared to a positive cash flow of approximately $3,026,000 for the
nine months ended September 30, 1998. 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, 1999 as compared with the nine months ended
- --------------------------------------------------------------------------------
September 30, 1998
- --------------------
The Company reported an overall decline in revenues and operating expenses
because of the sale of substantially all of its oil and gas properties in 1998.
The Company is reviewing potential oil and gas property acquisitions and intends
to pursue further oil and gas production and development activities.
BUSINESS REVIEW
Oil and Gas Segment
- ----------------------
As noted in the 10-KSB for the year ended December 31, 1998, the Company sold
substantially all of its oil and gas producing properties to an unrelated entity
in May 1998 with an effective date of April 1, 1998. As a part of the amended
sale agreement, the Company agreed to retain a small portion of the field. The
Company continues to earn marginal revenues from the retained interests in
certain oil and gas properties and interest income.
Wyoming Venture
- ----------------
On September 20, 1999, the Company completed the acquisition of a 25% interest
in a natural gas field in southwest Wyoming. As part of the acquisition the
Company acquired a 25% interest in two gas wells with a current production from
the field of 700 million cubic feet per day (155 mcfd net) and committed to
participate in the drilling of two additional test wells by year endThe
acquisition also included a field-wide gas gathering system with significant
excess capacity. Estimated net reserves are 130 mmcf for the two producing
wells.
7
The Company's acquisition of the 25% interest was concluded as a participant
with two other companies Hat LLC and Nevadacor Energy, Inc., which together
acquired 50% of Thorofare Energy, Inc.'s existing acreage position, existing
wells, well operating equipment and facilities together with production and
pipelines and prospective acreage acquisition in an area of interest negotiated
between the parties. The Purchase and Participation Agreement provides for
leasehold ownership as follows:
Petrominerals Corporation 50% (25% net);
HAT, LLC. . . . . . . . . 28% (14% net);
Navadacor Energy, Inc.. . 22% (11% net).
The Company has now completed the first well of its two well commitment with the
completion of the Blackstock #1 in the Stateline Field located in Carbon County,
Wyoming. The well was drilled to 5,620 ft. and was completed in the Lewis
Sandstone at approximately 5,400 ft. The well encountered over 100 ft. of gross
pay with net pay in excess of 50 ft. The company estimates that gross reserves
for the well could be over 2.0 BCF (400 mmcf net). In addition to the Lewis
interval, the well encountered potentially productive intervals in the Lance and
Ft. Union formation that will be evaluated at a later date. The well is
currently cleaning up after the frac treatment. The Company has a 29.34375% net
revenue interest in the well until pay. The remaining interest is controlled by
the operator and two other investors.
As announced previously, the Company plans to drill a second well before the end
of the year.
Oilfield Services Segment
- ---------------------------
As noted in the 10-KSB for the year ended December 31, 1998, the Company has
discontinued Hydro-Test's operation since July 1998. On June 8, 1999, the
Company's wholly owned subsidiary, Hydro-Test International, Inc. filed a
voluntary petition for Bankruptcy under Chapter 7 of the U.S. Bankruptcy Code
with the U.S. Bankruptcy Court in the Southern District of Texas. The
creditor's meeting was held in July 1999. None of Hydro-Test's creditors
attended the meeting. In its Chapter 7 petition, Hydro-Test indicated that it
estimates funds will be available for distribution to unsecured creditors. On
May 16, 1996 Hydro-Test filed for relief under Chapter 11 of the U.S. Bankruptcy
code. At September 30, 1999, Hydro-Test still owed approximately $448,000 in
prepetition liabilities from this previous Bankruptcy. In addition the
subsidiary owes the Company approximately $888,000 in prior operating advances
and other intercompany loans. The total carrying value of Hydro-Test's assets
at September 30, 1999 were approximately $125,000.
Change in Officers
- --------------------
On September 22, 1999, the Company announced that Daniel H. Silverman has joined
the company as Executive Vice President of Business Development and Chief
Operating Officer. He will be responsible for managing all of Petrominerals'
acquisition, corporate finance and operating activities.
8
Most recently, Silverman was Managing Director of Acquisitions and Divestitures
and a member of the Board of Directors of Torch Energy Advisors. Silverman
joined Torch in 1995 and managed the completion of $700 million in acquisitions,
including Nuevo's $492 million purchase of UNOCAL's upstream California assets
and Bellwether's $182 million purchase of the Torch managed institutional
partnerships. From 1992 to 1995, Silverman was Manager of Acquisitions and
Divestitures at Apache Corporation. At Apache. he was involved in over $1
billion of transactions, including the $102 million purchase of Crystal Oil, the
$250 million purchase of Dekalb and the $494 million purchase of assets from
Texaco. Silverman holds a B.S. in Petroleum Engineering from the University of
Texas at Austin and a M.S. in Mineral Economics from the Colorado School of
Mines.
Related Party Transactions
Two participating entities with Petrominerals Corporation in the acquisition of
the interest in the natural gas field in southwest Wyoming, HAT LLC and
Nevadacor Energy, Inc., include related parties. The participation opportunity
was offered by Thorofare Energy, Inc. first to the principals of HAT LLC, who in
turn presented the opportunity to Kaymor Petroleum Products, Inc., who in turn
offered a participation to Petrominerals Corporation. Kaymor Petroleum Products,
Inc. is controlled by Morris V. Hodges, President of Petrominerals Corporation.
In the execution of the Purchase and Participation Agreement , Kaymor Petroleum
Products, Inc. was represented by Nevadacor Energy, Inc., as agent. Kaymor
Petroleum Products, Inc. will hold its interest with Morris V. Hodges, and
others as members of a Nevada limited liability company, Kaymor Energy, LLC.
In addition, prior to becoming an employee of the company Daniel H. Silverman
was a participant as to a small interest with the investor group who formed HAT,
LLC for their participation.
Compensation of Directors and Options Awarded
- --------------------------------------------------
In October, 1999, the Board of Directors increased the compensation to the two
non-employee directors of the Company to the total amount of $750 per month and
awarded options for shares of the Company's Common Stock in the aggregate fair
market value (determined as of the date of grant) as follows:
Employee Directors:
Morris V. Hodges. . . . 20,000
Everett L. Hodges . . . 15,000
Non Employee Directors:
John C. McMahon . . . . 3,000
William N. Hagler . . . 4,500
Corporate Counsel:
Sheldon L. Foreman. . . 10,000
9
In addition, the Board of Directors affirmed the award of options under the
Engagement Agreement with Daniel H. Silverman as Executive Vice President and
Chief Operating Officer as follows:
- - 20,000 shares of its common shares with a price of $3.00 per share
vesting upon execution of the Engagement Agreement;
- - 20,000 shares of its common shares priced at $3.00 vesting in six months
from the execution date of the Engagement Agreement, and
- - 20,000 shares of its common shares priced at $5.00 vesting in eighteen
months from the execution date of the Engagement Agreement.
The Company has in effect two stock option plans -- the 1993 Incentive Stock
Option Plan (the "Incentive Plan") and the 1993 Non-Statutory Stock Option Plan
(the "Non-Statutory Plan")(the Incentive Plan and the Non-Statutory Plan are
sometimes collectively referred to herein as the "Plans"), which were adopted by
the Board of Directors and approved by the shareholders of the Company in 1993.
The Plans in the aggregate provide for the granting of options to purchase a
maximum of 1,200,000 shares of the Company's Common Stock to employees and
directors of the Company and its affiliates (as defined therein); however,
options which may be granted to non-employee directors are limited to a maximum
of 60,000 shares. The Plans expire on February 8, 2003.
Any of the Company's current or future employees who render, in the opinion of
the Board of Directors, the type of services which tend to contribute materially
to the success of the Company or an affiliate of the Company are eligible to
participate in the Incentive Plan. Any of the Company's current or future
employees or directors (whether or not other-wise employed by the Company) who
render, in the opinion of the Board of Directors, the type of services which
tend to contribute materially to the success of the Company or an affiliate of
the Company are eligible to participate in the Non-Statutory Plan.
10
PART II - OTHER INFORMATION
11
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, 1998.
ITEM 2. CHANGES IN SECURITIES
-----------------------
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
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None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None.
ITEM 5. OTHER INFORMATION
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None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(a) Exhibits - none
(b) Reports on Form 8-K -
Date . . . Description
- ---------- -----------------------------------------------
01/07/1999 Election of new officers and change of address
09/20/1999 Acquisition of interest in Wyoming gas field
09/22/1999 Daniel Silverman named Executive Vice President
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
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(Registrant)
/s/ Morris V. Hodges
- -----------------------
Morris V. Hodges
President, CEO & Chief Financial Officer