U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
Commission File No. 0-25386
FX ENERGY, INC.
---------------
(Exact name of registrant as specified in its charter)
NEVADA 87-0504461
------ ----------
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
3006 Highland Drive, Suite 206
Salt Lake City, Utah 84106
--------------------------
(Address of principal executive offices)
(801) 486-5555
--------------
(Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 of 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 of $0.001 par value common stock outstanding as of November
6, 2000, was 17,861,575.
FX ENERGY, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
Item Description Page
- ------ ------------------------------------------------------------- ------
Part I. Financial Information
1. Consolidated Balance Sheets.................................. 3
1. Consolidated Statements of Operations........................ 5
1. Consolidated Statements of Cash Flows........................ 6
1. Notes to Consolidated Financial Statements................... 7
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 11
Part II. Other Information
6. Exhibits and Reports on Form 8-K............................. 22
-- Signatures................................................... 23
2
PART I.
ITEM 1. FINANCIAL STATEMENTS
FX ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September December
30, 2000 31, 1999
------------------- -------------------
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 1,232,063 $ 1,619,237
Investment in marketable debt securities......................... 4,027,106 5,249,003
Accounts receivable:
Accrued oil sales........................................... 311,367 243,183
Interest receivable......................................... 100,042 86,723
Joint interest owners and others............................ 138,284 171,242
Advances to oil and gas ventures................................. 1,593,614 --
Inventory........................................................ 87,684 66,361
Other current assets............................................. 186,361 126,006
------------------- -------------------
Total current assets................................... 7,676,521 7,561,755
------------------- -------------------
Property and equipment, at cost:
Oil and gas properties (successful efforts method):
Proved...................................................... 4,273,294 1,687,089
Unproved.................................................... 1,399,852 1,382,880
Other property and equipment..................................... 3,237,768 2,652,102
------------------- -------------------
Gross property and equipment.......................... 8,910,914 5,722,071
Less accumulated depreciation, depletion and amortization........ (3,363,502) (3,173,493)
------------------- -------------------
Net property and equipment............................ 5,547,412 2,548,578
------------------- -------------------
Other assets:
Certificates of deposit ......................................... 356,500 356,500
Other............................................................ 2,789 2,789
------------------- -------------------
Total other assets..................................... 359,289 359,289
------------------- -------------------
Total assets.......................................................... $ 13,583,222 $ 10,469,622
=================== ===================
-- Continued --
The accompanying notes are an integral part of the consolidated
financial statements.
3
FX ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
-- Continued --
September December
30, 2000 31, 1999
-------------------- --------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................. $ 1,209,794 $ 623,911
Accrued liabilities.......................................... 1,097,875 1,478,862
-------------------- --------------------
Total current liabilities............................... 2,307,669 2,102,773
-------------------- --------------------
Commitments (Note 8)
Stockholders' equity:
Common stock, $.001 par value, 100,000,000 and 30,000,000
shares authorized as of September 30, 2000 and
December 31, 1999, respectively; 17,849,075 and
14,849,003 shares issued and outstanding as of
September 30, 2000 and December 31, 1999, respectively.. 17,849 14,849
Notes and interest receivable from officers.................. (765,659) (1,370,873)
Deferred compensation from stock option
modifications........................................... (1,304,978) --
Additional paid-in capital................................... 49,381,427 38,480,556
Accumulated deficit.......................................... (36,053,086) (28,757,683)
-------------------- --------------------
Total stockholders' equity.............................. 11,275,553 8,366,849
-------------------- --------------------
Total liabilities and stockholders' equity........................ $ 13,583,222 $ 10,469,622
==================== ====================
The accompanying notes are an integral part of the consolidated
financial statements.
4
FX ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended For the nine months ended
September 30, September 30,
------------------------------ -------------------------------
2000 1999 2000 1999
-------------- -------------- --------------- --------------
Revenues:
Oil sales............................................ $ 664,261 $ 451,917 $ 1,874,038 $ 1,045,669
Contract servicing.................................. 586,586 410,540 972,517 589,337
-------------- -------------- --------------- --------------
Total revenues................................ 1,250,847 862,457 2,846,555 1,635,006
-------------- -------------- --------------- --------------
Operating costs and expenses:
Lease operating expenses............................. 285,350 216,822 822,319 631,459
Production taxes..................................... 79,565 12,031 96,112 50,722
Geological and geophysical costs..................... 1,323,581 364,145 2,488,473 704,971
Exploratory dry hole costs........................... 969,461 580,000 1,898,220 612,859
Impairment of unproved oil and gas properties........ -- -- 674,158 --
Contract servicing costs............................ 440,039 249,311 774,468 382,697
Depreciation, depletion and amortization............. 94,607 116,353 275,954 368,742
General and administrative costs..................... 609,187 551,430 2,010,667 1,830,377
Apache Poland general and administrative costs....... 558,057 -- 558,057 --
Amortization of deferred compensation................ 260,995 -- 260,995 --
-------------- -------------- --------------- --------------
Total operating costs and expenses............ 4,620,842 2,090,092 9,859,423 4,581,827
-------------- -------------- --------------- --------------
Operating loss............................................ (3,369,995) (1,227,635) (7,012,868) (2,946,821)
-------------- -------------- --------------- --------------
Other income (expense):
Interest and other income............................ 179,024 155,215 428,625 362,649
Impairment of notes receivable from officers......... (597,035) -- (711,160) --
-------------- -------------- --------------- --------------
Total other income (expense).................. (418,011) 155,215 (282,535) 362,649
-------------- -------------- --------------- --------------
Net loss.................................................. $ (3,788,006) $ (1,072,420) $ (7,295,403) $ (2,584,172)
============== ============== =============== ==============
Basic and diluted net loss per common share............... $ (0.21) $ (0.08) $ (0.46) $ (0.18)
============== ============== =============== ==============
Basic and diluted weighted average number
Of shares outstanding................................. 17,838,803 14,847,916 15,950,475 13,979,582
============== ============== =============== ==============
The accompanying notes are an integral part of the consolidated
financial statements.
5
FX ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
-------------------------------------
2000 1999
------------------ -----------------
Cash flows from operating activities:
Net loss............................................................ $ (7,295,403) $ (2,584,172)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation, depletion and amortization.................... 275,954 368,742
Exploratory dry hole costs.................................. -- 128,922
Impairment of unproved oil and gas properties............... 674,158 --
Impairment of notes receivable from officers............... 711,160 --
Interest on officer loans................................... (105,947) (98,366)
Amortization of deferred compensation....................... 260,995 --
Increase (decrease) from changes in:
Accounts receivable............................................. (48,545) (99,587)
Advances to oil and gas ventures................................ (1,593,614) (52,414)
Inventory....................................................... (21,323) 1,515
Other current assets............................................ (60,355) (84,964)
Accounts payable and accrued liabilities........................ 204,897 (752,642)
------------------ -----------------
Net cash used in operating activities...................... (6,998,023) (3,172,966)
------------------ -----------------
Cash flows from investing activities:
Additions to oil and gas properties................................. (3,277,335) (390,086)
Additions to other property and equipment........................... (671,611) (76,672)
Additions to other assets........................................... -- (2,789)
Proceeds from sale of property interests............................ -- 6,000
Purchase of marketable debt securities.............................. (5,113,103) (6,138,711)
Proceeds from maturing marketable debt securities................... 6,335,000 3,157,000
------------------ -----------------
Net cash used in investing activities........................... (2,727,049) (3,445,258)
------------------ -----------------
Cash flows from financing activities:
Advances to officers................................................ -- (597,563)
Proceeds from sale of common stock (net of offering costs).......... 9,272,454 7,053,553
Proceeds from exercise of warrants and options...................... 65,444 13,250
------------------ -----------------
Net cash provided by financing activities...................... 9,337,898 6,469,240
------------------ -----------------
Decrease in cash and cash equivalents.................................... (387,174) (148,984)
Cash and cash equivalents at beginning of period......................... 1,619,237 1,811,780
------------------ -----------------
Cash and cash equivalents at end of period............................... $ 1,232,063 $ 1,662,796
================== =================
The accompanying notes are an integral part of the consolidated
financial statements.
6
FX ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Basis of Presentation
The interim financial data are unaudited; however, in the opinion of
the management of FX Energy, Inc. and Subsidiaries ("FX Energy" or the
"Company"), the interim data includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for the
interim periods. The interim financial statements should be read in conjunction
with FX Energy's quarterly report on Form 10-Q for the three months ended March
31, 2000, the quarterly report on Form 10-Q for the six months ended June 30,
2000, and the annual report on Form 10-K for the year ended December 31, 1999,
including the financial statements and notes thereto.
The consolidated financial statements include the accounts of FX
Energy, its wholly-owned subsidiaries and its undivided interests in Poland and
the United States. All significant inter-company accounts and transactions have
been eliminated in consolidation. At September 30, 2000, FX Energy owned 100% of
the voting stock of all of its subsidiaries.
Note 2: Income Taxes
FX Energy recognized no income tax benefit from the losses generated in
the first nine months of 2000 and the first nine months of 1999.
Note 3: Officer Loans
As of September 30, 2000, notes receivable and accrued interest from
officers, before an impairment allowance, totaled $2,142,331, with a due date of
on or before December 31, 2000. The notes receivable and accrued interest are
collateralized by 233,340 shares of FX Energy's common stock. In accordance with
"Accounting by Creditors for Impairment of a Loan," or SFAS 114, FX Energy has
recorded a cumulative impairment allowance of $1,376,673 as of September 30,
2000, including $711,160 for the nine months ended September 30, 2000, based on
the value of the underlying collateral.
In consideration for extending the term from December 31, 1999 through
December 31, 2000, the officers agreed that if the average closing price of the
common stock for five consecutive trading days results in a value of the
collateral equal to or above the total principal and accrued interest balances,
the officers will repay the loans within 45 days thereafter either in cash or by
tendering to the Company such number of shares which at the average closing
price for the previous five consecutive trading days equals the principal and
accrued interest then due.
The impairment allowance will continue to be adjusted quarterly based
on the market value of the collateral shares until the officer loans are deemed
paid in full.
Note 4: Net Loss Per Share
Basic earnings per share is computed by dividing the net loss by the
weighted average number of common shares outstanding. Diluted earnings per share
is computed by dividing the net loss by the sum of the weighted average number
of common shares and the effect of dilutive unexercised stock options and
warrants and convertible preferred stock. Options and warrants to purchase
4,135,667 shares of
7
common stock at prices ranging from $1.50 to $10.25 per share with a weighted
average of $5.26 per share were outstanding at September 30, 2000. Options and
warrants to purchase 3,692,572 shares of common stock at prices ranging from
$1.50 to $10.25 per share with a weighted average price of $5.17 per share were
outstanding at September 30, 1999. No options or warrants were included in the
computation of diluted earnings per share for the periods ended September 30,
2000 and 1999, because the effect would have been antidilutive.
Note 5: Business Segments
FX Energy operates within two segments of the oil and gas industry: the
exploration and production segment ("E&P") and the contract servicing segment.
Mining, which consisted solely of gold exploration on FX Energy's Sudety Project
Area in Poland, has been discontinued and is not considered a reportable
business segment by FX Energy. Identifiable net property and equipment are
reported by business segment for management and segment reporting purposes.
Current assets, current liabilities and other assets are not allocated to
business segments for management or segment reporting purposes.
Reportable business segment information for the three months ended
September 30, 2000, nine months ended September 30, 2000 and as of September 30,
2000 follows:
Reportable Segments
------------------------------- Non-
Contract Segmented
E&P Servicing Items Total
--------------- -------------- --------------- --------------
Three months ended September 30, 2000:
Revenues................. $ 664,261 $ 586,586 $ -- $ 1,250,847
Net profit or (loss) (1). (2,571,180) 84,506 (1,301,332) (3,788,006)
Nine months ended September 30, 2000:
Revenues................. 1,874,038 972,517 -- 2,846,555
Net loss (2)............. (4,716,752) 27,992 (2,606,643) (7,295,403)
As of September 30, 2000:
Identifiable net property
and equipment (3)..... 4,426,777 988,610 132,025 5,547,412
(1) Non-segmented items include $13,139 of corporate DD&A, $609,187 of
general and administrative costs, $260,995 of amortization of deferred
compensation, $179,024 of other income and an officer loan impairment
of $597,035.
(2) Non-segmented items include $52,446 of corporate DD&A, $2,010,667 of
general and administrative costs, $260,995 of amortization of deferred
compensation, $428,625 of other income and an officer loan impairment
of $711,160.
(3) Non-segmented items include $132,025 of corporate office equipment,
hardware and software.
8
Reportable business segment information for the three months ended
September 30, 1999, nine months ended September 30, 1999 and as of September 30,
1999 follows:
Reportable Segments
------------------------------- Non- Non-
Contract Reportable Segmented
E&P Servicing Segments Items Total
--------------- -------------- -------------- -------------- --------------
Three months ended September 30, 1999:
Revenues................. $ 451,917 $ 410,540 $ -- $ -- $ 862,457
Net profit or (loss) (1). (721,408) 80,296 (11,571) (419,737) (1,072,420)
Nine months ended September 30, 1999:
Revenues................. 1,045,669 589,337 -- -- 1,635,006
Net loss (2)............. (963,059) (36,164) (31,355) (1,553,594) (2,584,172)
As of September 30, 1999:
Identifiable net property
and equipment (3)..... 2,116,829 549,169 -- 176,772 2,842,770
(1) Non-segmented items include $23,522 of corporate DD&A, $551,430 of
general and administrative costs, and $155,215 of other income.
(2) Non-segmented items include $85,866 of corporate DD&A, $1,830,377 of
general and administrative costs and $362,649 of other income.
(3) Non-segmented items include $176,772 of corporate office equipment,
hardware and software.
Note 6: Supplemental Non-Cash Activity Disclosure
Non-Cash Investing Activities
During the nine months ended September 30, 1999, additions to oil and
gas properties included $131,500 of unproved property additions financed by
accrued liabilities.
Note 7: Private Placement of Securities
During June 2000, FX Energy completed a private placement of 2,969,000
shares of common stock that resulted in net proceeds of $9,272,454 ($10,391,500
gross). The proceeds from this placement have been used to partially fund
current planned ongoing exploration and development activities in Poland and for
other general corporate purposes.
Note 8: Fences Project Area
On April 11, 2000, FX Energy signed an agreement with the Polish Oil
and Gas Company ("POGC") under which FX Energy will earn a 49% working interest
in approximately 300,000 gross acres in west central Poland (the "Fences"
project area) by spending $16.0 million for agreed drilling, seismic acquisition
and other related activities.
On June 28, 2000, FX Energy announced that the Kleka 11, the first
exploratory well drilled in the Fences project area, was an exploratory success
after the well tested a calculated open flow rate of 34.3 MMcf of gas per day
from a Rotliegendes sandstone reservoir. The next exploratory well, the Mieszkow
1, commenced drilling during September 2000.
During the third quarter of 2000, FX Energy paid $5,573,931 to POGC
under this agreement, leaving a remaining commitment of $10,426,069.
9
Note 9: Deferred Compensation
On August 4, 2000, FX Energy extended the term of 678,000 options that
were to expire during 2000 for a period of two years, with a one-year vesting
period. The extended options include 500,000 options held by officers of FX
Energy, 78,000 options held by other employees of FX Energy and 100,000 options
held by a consultant to FX Energy. In accordance with "Accounting for Certain
Transactions Involving Stock Compensation" or FIN 44, FX Energy recognized
deferred compensation of $1,566,000, including $1,188,000 covering the intrinsic
value applicable to officers and employees and $378,000 covering the fair market
value calculated using the Black Scholes model for consultants. The calculation
was based on the date the options were extended and the deferred compensation
will be amortized to expense over the one-year vesting period.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Information May Prove Inaccurate
This report contains statements about the future, sometimes referred to
as "forward-looking" statements. Forward-looking statements are typically
identified by the use of the words "believe," "may," "will," "should," "expect,"
"anticipate," "estimate," "project," "propose," "plan," "intend" and similar
words and expressions. Statements that describe FX Energy's future strategic
plans, goals or objectives are also forward-looking statements. FX Energy
intends the forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in Section 27A of the
Securities Act of 1933 (the "Securities Act") and Section 21E of the Securities
Exchange Act of 1934.
Readers of this report are cautioned that any forward-looking
statements, including those regarding FX Energy or its management's current
beliefs, expectations, anticipations, estimations, projections, proposals, plans
or intentions, are not guarantees of future performance or results of events and
involve risks and uncertainties, such as:
o the future results of drilling individual wells and other
exploration and development activities;
o uncertainties regarding drilling potential and expected
results;
o the availability of required additional capital and the terms
on which it can be obtained;
o the inability to estimate precisely the hydrocarbon potential
of any exploration prospect or the related risks;
o future variations in well performance as compared to initial
test data;
o future events that may result in the need for additional
capital;
o fluctuations in prices for oil and gas;
o uncertainties of certain terms to be determined in the future
relating to FX Energy's oil and gas interests, including
exploitation fees, royalty rates and other matters;
o future drilling and other exploration schedules and sequences
for various wells and other activities;
o uncertainties regarding estimates of hydrocarbon reserves,
production rates, accumulations and recoveries;
o uncertainties regarding future political, economic,
regulatory, fiscal, taxation and other policies in Poland;
o the future ability of FX Energy to attract strategic partners
to share the costs of exploration, exploitation, development
and acquisition activities; and
o future plans and the financial and technical resources of
strategic partners.
The forward-looking information is based on present circumstances and
on FX Energy's predictions respecting events that have not occurred, which may
not occur or which may occur with different consequences from those now assumed
or anticipated. Actual events or results may differ materially from those
discussed in the forward-looking statements. The forward-looking statements
included in this report are made only as of the date of this report. FX Energy
is not obligated to update such forward-looking statements to reflect subsequent
events or circumstances.
11
Introduction
FX Energy is an independent energy company engaged in the exploration,
development and production of oil and gas from properties located primarily in
the Republic of Poland. To date, all of FX Energy's production has been from its
United States producing properties. In the western United States, FX Energy
produces oil from fields in Montana and Nevada and has a drilling and well
servicing company in northern Montana and oil and gas exploration prospects in
several western states.
FX Energy conducts substantially all of its exploration and development
activities jointly with others and, accordingly, recorded amounts for FX
Energy's activities in Poland reflect only FX Energy's proportionate interest in
these activities.
FX Energy's results of operations may vary significantly from period to
period based on the factors discussed above and on other factors such as FX
Energy's exploratory and development drilling success. Therefore, the results of
any one period may not be indicative of future results.
FX Energy follows the successful efforts method of accounting for its
oil and gas properties. Under this method of accounting, all property
acquisition costs and costs of exploratory and development wells are capitalized
when incurred, pending determination of whether the well has found proved
reserves. If an exploratory well has not found proved reserves, these costs plus
the costs of drilling the well are expensed. The costs of development wells are
capitalized, whether productive or nonproductive. Geological and geophysical
costs on exploratory prospects and the costs of carrying and retaining unproved
properties are expensed as incurred. An impairment allowance is provided to the
extent that capitalized costs of unproved properties, on a property-by-property
basis, are considered not to be realizable. An impairment loss is recorded if
the net capitalized costs of proved oil and gas properties exceed the aggregate
undiscounted future net revenues determined on a property-by-property basis. The
impairment loss recognized equals the excess of net capitalized costs over the
related fair value, determined on a property-by-property basis. As a result of
the foregoing, FX Energy's results of operations for any particular period may
not be indicative of the results that could be expected over longer periods.
FX Energy has reviewed all recently issued, but not yet adopted,
accounting standards in order to determine their effects, if any, on its results
of operations or financial position. Based on that review, FX Energy believes
that none of these pronouncements will have a significant effect on current or
future earnings or operations.
Results of Operations by Business Segment
FX Energy operates within two segments of the oil and gas industry: the
exploration and production segment and the contract servicing segment. Mining,
which consisted solely of gold exploration on FX Energy's Sudety Project Area in
Poland, has been discontinued and is excluded from the following discussion.
Depreciation, depletion and amortization costs ("DD&A") and general and
administrative costs ("G&A") directly associated with their respective segments
are detailed within the following discussion. Amortization of deferred
compensation, interest income, other income and officer loan impairment are not
allocated to individual operating segments for management or segment reporting
purposes and are discussed in their entirety following the segment discussion.
12
Comparison of the third quarter of 2000 to the third quarter of 1999
E&P - Oil and Gas Segment
A summary of the percentage change in oil revenues, average oil prices,
production volumes and lifting costs per barrel for the third quarters of 2000
and 1999, as compared to their respective prior year's period, is set forth in
the following table:
Quarter ended September 30,
--------------------------------------
2000 1999
------------------ ------------------
Oil revenues................................................. $ 664,000 $ 452,000
Percent change versus prior year's quarter................. +47% +64%
Average oil price............................................ $ 27.60 $ 18.02
Percent change versus prior year's quarter................. +53% +93%
Production volumes (bbls).................................... 24,069 25,075
Percent change versus prior year's quarter................. -4% -15%
Lifting cost per barrel...................................... $ 11.86 $ 8.65
Percent change versus prior year's quarter................. +37% +11%
Oil Revenues. Oil revenues were $664,000 during the third quarter of
2000, an increase of $212,000, as compared to $452,000 during the same period of
1999. During the third quarters of 2000 and 1999, FX Energy's oil revenues were
positively affected by increased oil prices and negatively affected by lower
production rates attributable to the natural production declines of FX Energy's
producing properties.
Lease Operating Costs. FX Energy's lease operating costs are composed
of normal recurring lease operating expenses ("LOE") and production taxes. Lease
operating costs were $365,000 during the third quarter of 2000, an increase of
$136,000, as compared to $229,000 during the same period of 1999. A comparative
discussion of each component of lease operating costs incurred during the third
quarter of 2000 and 1999 follows:
LOE was $285,000 during the third quarter of 2000, an increase of
$68,000, as compared to $217,000 during the same period of 1999. During the
third quarter of 2000, FX Energy plugged and abandoned ten inactive wells on the
Cut Bank Sand Unit, its principal producing property, at a net cost of
approximately $92,000. During the third quarter of 1999, FX Energy deferred
workovers and reduced its LOE by utilizing a redesigned pattern of injecting
fluids into the Cut Bank Sand Unit, which was initiated during the first quarter
of 1999.
Production taxes were $80,000 during the third quarter of 2000, an
increase of $68,000, as compared to $12,000 during the same period of 1999.
During 1999, the state of Montana passed legislation to reduce the production
tax rate to as low as 0.5% for stripper oil wells. The legislation also included
a provision whereby the production tax rate would increase to as much as 12.8%
for stripper wells if the average price of west Texas intermediate crude oil
("WTI") exceeded $30 per barrel during any calendar quarter. In the event the
price of WTI exceeded $30 per barrel, the higher tax rate would apply to all
production during the then-current calendar quarter. During the third quarter of
2000, WTI exceeded $30 per barrel, resulting in substantially higher production
taxes during the third quarter of 2000, as compared to the same period of 1999.
During the third quarters of 2000 and 1999, production taxes averaged
approximately 11.98% and 0.03% of oil revenues, respectively.
13
Exploration Costs. FX Energy's exploration costs consist of geological
and geophysical costs ("G&G"), exploratory dry holes and nonproducing leasehold
impairments. Exploration costs were $2,293,000 during the third quarter of 2000,
an increase of $1,349,000, as compared to $944,000 during the same period of
1999. Exploration costs include $12,000 of G&G costs relating to gold
exploration in Poland incurred during the third quarter of 1999, which are
excluded from the following discussion of each component of exploration costs:
G&G costs were $1,324,000 during the third quarter of 2000, an increase
of $972,000, as compared to $352,000 during the same period of 1999. During the
third quarter of 2000, FX Energy spent $1,050,000 on acquiring 3-D seismic data
on two separate areas within its Fences project area in western Poland. During
the third quarter of 1999, FX Energy's G&G costs were primarily covered by
Apache Corporation ("Apache") in accordance with the Apache Exploration Program
terms, except for the Pomeranian and Warsaw West project areas, where FX Energy
spent $140,000 and $97,000, respectively, primarily on reprocessing 2-D seismic
data. G&G costs will continue to fluctuate from period to period, based on FX
Energy's level of exploratory activity in Poland and the respective cost
participation percentage of FX Energy's industry partners.
Exploratory dry hole costs were $969,000 during the third quarter of
2000, an increase of $389,000, as compared to $580,000 during the same period of
1999. During the third quarter of 2000, FX Energy drilled the Wilga 4 on the
Lublin Basin project area, which subsequently was determined to be an
exploratory dry hole on August 31, 2000, at a cost of approximately $838,000.
Also, during the third quarter of 2000, FX Energy incurred $131,000 of
additional costs associated with the Wilga 3 well, an exploratory dry hole
drilled on the Lublin Basin project area during the second quarter of 2000.
During the third quarter of 1999, FX Energy wrote off $580,000 of costs
associated with reentering the Stryszawa 2K well in the Lachowice area of
southern Poland after the well did not obtain a commercial production rate.
There were no nonproducing leasehold impairments during the third
quarters of 2000 and 1999. As of September 30, 2000, FX Energy had capitalized
unproved property costs of $1,400,000, including $18,000 domestically and
$1,382,000 in Poland. Nonproducing leasehold impairments will vary from period
to period based on FX Energy's determination that capitalized costs of unproved
properties, on a property-by-property basis, are not realizable.
DD&A Expense - E&P. DD&A expense for producing properties was $20,000
for the third quarter of 2000, an increase of $8,000, as compared to $12,000
during the same period of 1999. The DD&A rate per barrel for the third quarter
of 2000 was $0.81, an increase of $0.34, as compared to $0.47 during the same
period of 1999. The DD&A rate increase for the third quarter of 2000, as
compared to the same period of 1999, was due principally to a 29% reduction in
estimated proved reserves as of December 31, 1999, as compared to December 31,
1998.
Apache Poland G&A Costs. Apache Poland G&A costs consist of FX Energy's
share of direct overhead costs incurred by Apache in Poland in accordance with
terms of the Apache Exploration Program. Apache Poland G&A costs were $558,000
during the third quarter of 2000, as compared to no Apache Poland G&A costs
during the same period of 1999. Prior to July 1, 2000, Apache covered all of FX
Energy's pro rata share of Apache Poland G&A costs. Effective July 1, 2000, FX
Energy began paying approximately 35% of Apache Poland G&A costs, to be adjusted
as each of Apache's remaining drilling requirements are completed, up to a
maximum of 50%. The annual budgeted amount of Apache Poland G&A costs is subject
to advance joint approval by FX Energy and Apache.
14
Contract Servicing
Contract Servicing Revenues. Contract servicing revenues were $587,000
during the third quarter of 2000, an increase of $176,000, as compared to
$411,000 during the same period of 1999. The increase in revenue during the
third quarter of 2000, as compared to the same period of 1999, was primarily due
to improved market conditions as a result of higher oil prices. During the third
quarters of 2000 and 1999, FX Energy's contract servicing segment generated
gross profit before depreciation of $147,000 and $162,000, respectively.
Contract servicing revenues will continue to fluctuate period to period based on
market conditions, the degree of emphasis on utilizing equipment on Company
owned properties and other factors.
Contract Servicing Costs. Contract servicing costs were $440,000 during
the third quarter of 2000, an increase of $191,000, as compared to $249,000 for
the same period of 1999. In general, contract servicing costs are directly
related to contract servicing revenues. During the third quarters of 2000 and
1999, contract servicing costs were 75% and 61%, respectively, of contract
servicing revenues. Contract servicing costs will continue to fluctuate period
to period based on the contract servicing revenues generated, market conditions,
degree of emphasis on utilizing equipment on Company owned properties and other
factors.
DD&A Expense - Contract Servicing. DD&A expense for contract servicing
was $62,000 during the third quarter of 2000, a decrease of $18,000, as compared
to $80,000 during the same period of 1999, primarily due to capital items being
depreciated during the third quarter of 1999 subsequently becoming fully
depreciated prior to or during the third quarter of 2000.
Nonsegmented Information
DD&A Expense - Corporate. DD&A expense for corporate activities was
$13,000 during the third quarter of 2000, a decrease of $11,000, as compared to
$24,000 during the same period of 1999. The decrease during the third quarter of
2000, as compared to the same period of 1999, is primarily the result of office
equipment, furniture and software being depreciated during the third quarter of
1999 subsequently becoming fully depreciated prior to or during the third
quarter of 2000.
G&A Costs. G&A costs were $609,000 during the third quarter of 2000, an
increase of $58,000, as compared to $551,000 for the same period of 1999. During
the third quarter of 2000, FX Energy incurred more domestic G&A costs relating
to expanding its presence in Poland, as compared to the same period of 1999. G&A
costs are expected to continue at current or higher levels, with fluctuations
from period to period primarily due to the level of FX Energy's activities in
Poland.
Amortization of Deferred Compensation. Amortization of deferred
compensation was $261,000 for the third quarter of 2000, as compared to no
amortization of deferred compensation during the same period of 1999. On August
4, 2000, FX Energy extended the term of 678,000 options that were to expire
during 2000 for a period of two years, with a one-year vesting period. In
accordance with FIN 44, FX Energy will incur deferred compensation cost of
$1,566,000, including $1,188,000 covering the intrinsic value applicable to
officers and employees and $378,000 covering the fair market value calculated
using the Black Scholes model for consultants, amortized to expense over the
one-year vesting period.
Interest and Other Income. Interest and other income was $179,000
during the third quarter of 2000, an increase of $24,000, as compared to
$155,000 during the same period of 1999. FX Energy's cash and marketable debt
securities average balances during the third quarter of 2000 were slightly
15
higher, as compared to the same period of 1999. As a result, interest income was
$179,000 during the third quarter of 2000, an increase of $26,000, as compared
to $153,000 during the same period of 1999.
Officer Loan Impairment. Officer loan impairment was $597,000 for the
third quarter of 2000, as compared to no officer loan impairment for the same
period of 1999. In accordance with SFAS 114, FX Energy recorded an officer loan
impairment of $597,000 for the third quarter of 2000. The book value of the
notes receivable from officers totaled $766,000 as of September 30, 2000,
representing principal and interest of $2,142,000 reduced by a cumulative
impairment allowance of $1,376,000. The notes receivable from officers are
collateralized by 233,340 shares of FX Energy's common stock. The impairment
allowance will continue to be adjusted quarterly based on the market value of
the collateral shares.
Comparison of the first nine months of 2000 to the first nine months of
1999
E&P - Oil and Gas Segment
A summary of the percentage change in oil revenues, average oil prices,
production volumes and lifting costs per barrel for the first nine months of
2000 and 1999, as compared to their respective prior year's period, is set forth
in the following table:
Nine Months Ended September 30,
---------------------------------------------
2000 1999
--------------------- ---------------------
Oil revenues................................................. $ 1,874,000 $ 1,046,000
Percent change versus prior year's first nine months....... +79% +19%
Average oil price............................................ $ 25.79 $ 13.59
Percent change versus prior year's first nine months....... +90% +33%
Production volumes (bbls).................................... 72,662 76,970
Percent change versus prior year's first nine months....... -6% -11%
Lifting costs per barrel..................................... $ 11.32 $ 8.20
Percent change versus prior year's first nine months....... +38% -3%
Oil Revenues. Oil revenues were $1,874,000 during the first nine months
of 2000, an increase of $828,000, as compared to $1,046,000 during the same
period of 1999. During the first nine months of 2000 and 1999, FX Energy's oil
revenues were positively affected by increased oil prices and negatively
affected by lower production rates attributable to the natural production
declines of FX Energy's producing properties.
Lease Operating Costs. Lease operating costs were $918,000 during the
first nine months of 2000, an increase of $236,000, as compared to $682,000
during the same period of 1999. A comparative discussion of each component of
lease operating costs incurred during the first nine months of 2000 and 1999
follows:
LOE was $822,000 during the first nine months of 2000, an increase of
$191,000, as compared to $631,000 during the same period of 1999. During the
first nine months of 2000, FX Energy incurred substantially more workover,
maintenance and repair costs as it completed work that had been postponed due to
low oil prices during 1999. Also, during the first nine months of 2000, FX
Energy plugged and abandoned ten inactive wells on the Cut Bank Sand Unit.
During the first nine months of 1999, FX
16
Energy deferred workovers and redesigned the pattern of injecting fluids into
the Cut Bank Sand Unit in an effort to reduce its operating costs.
Production taxes were $96,000 during the first nine months of 2000, an
increase of $45,000 as compared to $51,000 during the same period of 1999.
During 1999, the state of Montana passed legislation to reduce the production
tax rate to as low as 0.5% for stripper oil wells. The legislation also included
a provision whereby the production tax rate would increase to as much as 12.8%
for stripper wells if the average price of WTI exceeded $30 per barrel during
any calendar quarter. In the event the price of WTI exceeded $30 per barrel, the
higher tax rate would apply to all production during the then-current calendar
quarter. During the third quarter of 2000, WTI exceeded $30 per barrel,
resulting in a higher effective production tax rate during the first nine months
of 2000, as compared to the same period of 1999. During the first nine months of
2000 and 1999, production taxes averaged approximately 5.1% and 4.9% of oil
revenues, respectively.
Exploration Costs. Exploration costs were $5,061,000 during the first
nine months of 2000, an increase of $3,743,000, as compared to $1,318,000 during
the same period of 1999. Exploration costs include $31,000 of G&G costs relating
to gold exploration in Poland incurred during the first nine months of 1999,
which are excluded from the following discussion of each component of
exploration costs:
G&G costs were $2,488,000 during the first nine months of 2000, an
increase of $1,814,000, as compared to $674,000 during the same period of 1999.
During the first nine months of 1999, FX Energy spent $1,050,000 on acquiring
3-D seismic data on two separate areas within the Fences project area and
$1,078,000 on acquiring and processing 2-D seismic data on areas within FX
Energy's Area of Mutual Interest with Apache in Poland. During the first nine
months of 1999, FX Energy's G&G costs were primarily covered by Apache in
accordance with the Apache Exploration Program terms, except for the Pomeranian
and Warsaw West project areas, where FX Energy spent $168,000 and $97,000,
respectively, primarily on reprocessing 2-D seismic data. G&G costs will
continue to fluctuate from period to period, based on FX Energy's level of
exploratory activity in Poland and the respective cost participation percentage
of FX Energy's industry partners.
Exploratory dry hole costs were $1,898,000 during the first nine months
of 2000, an increase of $1,285,000, as compared to $613,000 during the first
nine months of 1999. During the first nine months of 2000, FX Energy drilled the
Wilga 3 and Wilga 4 wells, both of which were subsequently determined to be
exploratory dry holes at a cost of $1,060,000 and $838,000, respectively. During
the first nine months of 1999, FX Energy wrote off $580,000 relating to the cost
of reentering the Stryszawa 2K in the Lachowice area after the well did not
obtain a commercial production rate and incurred $33,000 of additional costs
relating to the Gladysze 1A, an exploratory dry hole drilled in Poland on the
Baltic project area during 1997.
Nonproducing leasehold impairments were $674,000 during the first nine
months of 2000, as compared to no nonproducing leasehold impairments during
1999. During the first nine months of 2000, FX Energy wrote off $674,000 of
nonproducing leasehold costs relating to the Williston Basin in North Dakota,
where it has no further exploration plans. As of September 30, 2000, FX Energy
had capitalized unproved property costs of $1,400,000, including $18,000
domestically and $1,382,000 in Poland. Nonproducing leasehold impairments will
continue to vary from period to period based on FX Energy's determination that
capitalized costs of unproved properties, on a property-by-property basis, are
not realizable.
17
DD&A Expense - E&P. DD&A expense for producing properties was $54,000
for the first nine months of 2000, an increase of $14,000, as compared to
$40,000 during the same period of 1999. The DD&A rate per barrel for the first
nine months of 2000 was $0.74, an increase of $0.22, as compared to $0.52 during
the same period of 1999. The DD&A rate increase for the first nine months of
2000, as compared to the same period of 1999, was due principally to a 29%
reduction in estimated proved reserves as of December 31, 1999, as compared to
December 31, 1998.
Apache Poland G&A Costs. Apache Poland G&A costs were $558,000 during
the first nine months of 2000, as compared to no Apache Poland G&A costs during
the same period of 1999. Prior to July 1, 2000, Apache covered all of FX
Energy's pro rata share of Apache Poland G&A costs. Effective July 1, 2000, FX
Energy began paying approximately 35% of Apache Poland G&A costs, to be adjusted
as each of Apache's remaining drilling requirements are completed, up to a
maximum of 50%. The annual budgeted amount of Apache Poland G&A costs is subject
to advance joint approval by FX Energy and Apache.
Contract Services - Oil and Gas Segment
Contract Servicing Revenues. Contract servicing revenues were $973,000
during the first nine months of 2000, an increase of $384,000, as compared to
$589,000 during the first nine months of 1999. The increase in revenue during
the first nine months of 2000, as compared to the same period of 1999, was
primarily due to improved market conditions as a result of higher oil prices.
During the first nine months of 2000 and 1999, FX Energy's contract servicing
segment generated gross profit before depreciation of $198,000 and $207,000,
respectively. Contract servicing revenues will continue to fluctuate period to
period based on market conditions, the degree of emphasis on utilizing equipment
on Company owned properties and other factors.
Contract Servicing Costs. Contract servicing costs were $774,000 during
the first nine months of 2000, an increase of $391,000, as compared to $383,000
for the same period of 1999. In general, contract servicing costs are directly
related to contract servicing revenues. During the first nine months of 2000 and
1999, contract servicing costs were 80% and 65%, respectively, of contract
servicing revenues. Contract servicing costs will continue to fluctuate period
to period based on the contract servicing revenues generated, market conditions,
degree of emphasis on utilizing equipment on Company owned properties and other
factors.
DD&A Expense - Contract Servicing. DD&A expense for contract servicing
was $170,000 during the first nine months of 2000, a decrease of $73,000, as
compared to $243,000 during the same period of 1999, primarily due to capital
items being depreciated during the first nine months of 1999 subsequently
becoming fully depreciated prior to or during the first nine months of 2000.
Nonsegmented Information
DD&A Expense - Corporate. DD&A expense for corporate activities was
$52,000 during the first nine months of 2000, a decrease of $34,000, as compared
to $86,000 during the same period of 1999. The decrease during the first nine
months of 2000, as compared to the same period of 1999, is primarily the result
of office equipment, furniture and software being depreciated during the first
nine months of 1999 subsequently becoming fully depreciated prior to or during
the first nine months of 2000.
G&A Costs. G&A costs were $2,011,000 during the first nine months of
2000, an increase of $181,000, as compared to $1,830,000 for the same period of
1999. During the first nine months of 2000, FX Energy incurred more domestic G&A
costs relating to expanding its presence in Poland, as compared
18
to the same period of 1999. G&A costs are expected to continue at current or
higher levels, with fluctuations from period to period primarily due to the
level of FX Energy's activities in Poland.
Amortization of Deferred Compensation. Amortization of deferred
compensation was $261,000 for the first nine months of 2000, as compared to no
amortization of deferred compensation during the same period of 1999. On August
4, 2000, FX Energy extended the term of 678,000 options that were to expire
during 2000 for a period of two years, with a one-year vesting period. In
accordance with FIN 44, FX Energy will incur deferred compensation cost of
$1,566,000, including $1,188,000 covering the intrinsic value applicable to
officers and employees and $378,000 covering the fair market value calculated
using the Black Scholes model for consultants, amortized to expense over the
one-year vesting period.
Interest and Other Income. Interest and other income was $429,000
during the first nine months of 2000, an increase of $66,000, as compared to
$363,000 during the same period of 1999. FX Energy's average cash and marketable
debt securities balances were slightly higher during the first nine months of
2000, as compared to the same period of 1999. As a result, FX Energy earned
$421,000 of interest income during the first nine months of 2000, an increase of
$62,000, as compared to $359,000 for the same period of 1999. Interest and other
income will continue to fluctuate from period to period, primarily due to the
average cash and marketable debt securities balances.
Officer Loan Impairment. Officer loan impairment was $711,000 for the
first nine months of 2000, as compared to no officer loan impairment for the
same period of 1999. In accordance with SFAS 114, FX Energy recorded an officer
loan impairment of $711,000 for the first nine months of 2000. The book value of
the notes receivable from officers totaled $766,000 as of September 30, 2000,
representing principal and interest of $2,142,000 reduced by a cumulative
impairment allowance of $1,376,000. The notes receivable from officers are
collateralized by 233,340 shares of FX Energy's common stock. The impairment
allowance will continue to be adjusted quarterly based on the market value of
the collateral shares.
Financial Condition
Working Capital. FX Energy's working capital was $5,369,000 as of
September 30, 2000, a decrease of $90,000, as compared to $5,459,000 at December
31, 1999. During the first nine months of 2000, FX Energy received net cash from
financing activities of $9,338,000, which was offset by $6,998,000 of cash used
in operating activities and $2,727,000 of cash used in investing activities, as
set forth in the following discussion:
Operating Activities. Net cash used in operating activities was
$6,998,000 during the first nine months of 2000, an increase of $3,285,000, as
compared to $3,173,000 for the same period of 1999. During the first nine months
of 2000, FX Energy had a net loss after noncash operating adjustments of
$5,479,000 and incurred negative net working capital changes of $1,519,000.
During the first nine months of 1999, FX Energy had a net loss after operating
adjustments of $2,185,000 and incurred negative net working capital changes of
$988,000.
Investing Activities. Net cash used in investing activities was
$2,727,000 during the first nine months of 2000, a decrease of $718,000, as
compared to $3,445,000 for the same period of 1999. During the first nine months
of 2000, FX Energy spent $2,429,000 to drill the Kleka 11, $157,000 on upgrading
its producing properties, $691,000 on unproved properties, $646,000 on upgrading
and acquiring additional contract servicing equipment and $26,000 on
miscellaneous assets. Also, during the first nine months of 2000, FX Energy
spent $5,113,000 on acquiring marketable debt securities and received
19
$6,335,000 from maturing marketable debt securities. During the first nine
months of 1999, FX Energy spent $78,000 on upgrading its producing properties, a
net amount of $305,000 on unproved properties, $63,000 on upgrading its drilling
well servicing equipment and $17,000 on miscellaneous assets. Also, during the
first nine months of 1999, FX Energy spent $6,139,000 on acquiring marketable
debt securities and received $3,157,000 from maturing marketable debt
securities.
Financing Activities. Net cash provided by financing activities was
$9,338,000 during the first nine months of 2000, an increase of $2,869,000, as
compared to $6,469,000 for the same period of 1999. During the first nine months
of 2000, FX Energy realized net proceeds after offering costs of $9,272,000 from
the sale of 2,969,000 shares of FX Energy's common stock and $65,000 from the
exercise of options and warrants to purchase 31,072 shares of FX Energy's common
stock. During the first nine months of 1999, FX Energy advanced two of its
officers a total of $598,000, realized net proceeds after offering costs of
$7,054,000 from the sale of 1,792,500 shares of FX Energy's common stock and
$13,000 from the exercise of options to purchase 2,000 shares of FX Energy's
common stock.
Capital Requirements
As of September 30, 2000, FX Energy had approximately $5.3 million of
cash, cash equivalents and marketable debt securities with no long-term debt. FX
Energy believes this amount will be sufficient to cover its present minimum
exploration and operating commitments through 2000 and into 2001. In order to
fully fund its current planned exploration and development activities beyond
early 2001, FX Energy will need additional debt or equity capital.
FX Energy has initiated discussions with commercial lenders and gas
purchasers for possible project funding related to its Kleka 11 discovery and
possible other future discoveries. If FX Energy is not able to obtain such
funding, it may need additional capital from other sources to fund the balance
of its capital expenditure budget for the Fences project area and other planned
activities.
Fences Project Area. FX Energy has agreed to spend $16.0 million of
exploration and development costs on the Fences project area to earn a 49%
interest. To date, FX Energy has paid approximately $5.6 million of this
commitment, including $2.4 million to drill the Kleka 11, a $1.0 million advance
to commence drilling the Mieszkow 1 and $2.2 million to commence two separate
3-D seismic surveys. After FX Energy completes its $16.0 million commitment,
POGC will begin bearing its 51% share of further costs.
FX Energy expects to utilize any net revenue it receives from the
development of its Kleka 11 discovery and other future discoveries in the Fences
project area to supplement its capital from other sources to further explore and
develop the Fences project area.
Apache Exploration Program. During the remainder of 2000 and early
2001, FX Energy expects to have substantially all of its share of exploration
activities relating to the Apache Exploration Program paid for by Apache. Apache
is required to cover FX Energy's share of costs to drill three exploratory wells
and to acquire approximately 340 kilometers of 2-D seismic data.
On October 23, 2000, Apache commenced drilling the Tuchola 108-2, an
exploratory well on the Pomeranian project area in northwest Poland in which FX
Energy has a 42.5% working interest. Before the end of 2000, Apache plans to
commence drilling the Annapol 254-1, an exploratory well on the West Warsaw
project area in central Poland in which FX Energy has a 50% working interest.
During 2001, Apache plans to drill an additional exploratory well in a yet to be
determined location in Poland. Apache will cover FX Energy's share of costs for
all three of the aforementioned exploratory wells.
20
FX Energy is evaluating its Wilga project area with Apache and POGC.
Under the terms of FX Energy's agreement with Apache and POGC, any party has the
right to propose that certain activities be undertaken, elect to participate in
activities proposed by others or elect not to participate. If a party elects not
to participate in specific activities, the other parties nevertheless have the
right to proceed.
Other. If FX Energy has the opportunity to participate in additional
appraisal, development or exploration projects with POGC, it may be required to
obtain additional capital. FX Energy expects to incur minimal exploration
expenditures on its Baltic project area in Poland during the remainder of 2000
and 2001. Similarly, FX Energy expects to incur minimal exploration, appraisal
and development expenditures on its domestic operations during the remainder of
2000 and 2001.
FX Energy may change the allocation of capital among the categories of
anticipated expenditures depending upon future events that it cannot predict.
For example, FX Energy may change the allocation of its expenditures based on
the actual results and costs of future exploration, appraisal, development,
production, property acquisition and other activities. In addition, FX Energy
may have to change its anticipated expenditures if costs of placing any
particular discovery into production are higher, if the field is smaller or if
the commencement of production takes longer than expected.
FX Energy may obtain funds for future capital investments from the sale
of additional securities, project financing, sale of partial property interests,
strategic alliances with other energy or financial partners or other
arrangements, all of which may dilute the interest of its existing stockholders
or its interest in the specific project financed.
21
PART II.
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are included as part of this report:
SEC
Exhibit Reference
Number Number Title of Document Location
- --------------------------------------------------------------------------------
3.01 3 Restated and Amended Articles of Incorporation This Filing
10.01 10 Option Extensions with related schedules This Filing
27.01 27 Financial Data Schedule This Filing
(b) Reports on form 8-K
During the quarter ended September 30, 2000, FX Energy filed the
following items on Form 8-K:
Date of Event Reported Item(s) Reported
---------------------- ----------------
August 31, 2000 Item 5. Other Events
September 12, 2000 Item 5. Other Events
September 28, 2000 Item 5. Other Events
22
SIGNATURES
Pursuant to the requirements 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.
FX ENERGY, INC.
---------------
(Registrant)
Date: November 6, 2000 By /s/ David N. Pierce
-------------------
President, Director,
Chief Executive Officer
Date: November 6, 2000 By /s/ Dennis L. Tatum
-------------------
Vice-President, Treasurer and
Chief Accounting Officer
23