UNITED STATES
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, 2001
Commission File No. 000-30503
PANGEA PETROLEUM CORPORATION
(Name of small business issuer in its charter)
Colorado
(State or jurisdiction of
incorporation or organization)
76-0635938
(I.R.S. Employer Identification No.)
6776 Southwest Freeway, Suite 620
Houston, Texas 77074
(Address of principal executive offices )(Zip Code)
832-242-3381
(Registrant's telephone no., including area code)
Indicate by check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Company was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
52,186,900 shares of Common Stock,
par value $.001 per share, were outstanding
at November 19, 2001.
PANGEA PETROLEUM CORPORATION
FORM 10-Q
Table of Content
PART I - Financial Information
Item 1 - Financial Statements
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Item 2 - Changes in Securities and Use of Proceeds
Item 3 - Defaults Upon Senior Securities
Item 4 - Submission of Matters to a Vote of Security Holders
Item 5 - Other Information
Item 6 - Exhibits and Reports on Form 8-K
SIGNATURES
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
- ------------------------------------------
FORM 10-Q
Table of Content
PART I - Financial Information
Item 1 - Financial Statements
Independent Accountants' Report
Condensed Consolidated Financial Statements
Balance Sheets - September 30, 2001 and December 31, 2000 (Audited)
Statements of Operations - Three and nine months ended September 30, 2001
and 2000
Statements of Cash Flows - Nine months ended September 30, 2001 and 2000
Notes to Consolidated Financial Statements
R. E. Bassie & Co.
Certified Public Accountants
- ------------------------------------------------------------------------------
6776 Southwest Freeway, Suite 580
Houston, Texas 77074-2115
Tel: (713) 266-0691 Fax: (713) 266-0692
E-Mail: Rebassie@aol.com
Independent Accountants' Report
To The Board of Directors and Stockholders
Pangea Petroleum Corporation:
We have reviewed the accompanying condensed consolidated balance sheet of Pangea
Petroleum Corporation and subsidiary as of September 30, 2001, and the related
condensed consolidated statements of operations and cash flows for the three and
nine month periods ended September 30, 2001. These financial statements are the
responsibility of the Corporation's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of
Pangea Petroleum Corporation and subsidiary as of December 31, 2000, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year then ended (not presented herein); and in our report dated
January 26, 2001, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 2000 is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
/s/ R. E. Bassie & Co.
Houston, Texas
November 16, 2001
PANGEA PETROLEUM CORPORATION AND SUBSIDIARY
Balance Sheets
September 30, 2001 and December 31, 2000 (Unaudited - see
accompanying accountants' review report)
Assets 2001 2000
(Audited)
Current assets:
Cash $ 10,885 $ 629,186
Accounts receivable, less allowance for doubtful accounts of
$119,189 at September 30, 2001 and $104,734
at December 31, 2000 51,624 86,551
Prepaid expenses and other current assets 2,939 2,939
---------------- ----------------
Total current assets 65,448 718,676
---------------- ----------------
Noncurrent receivables from related parties 224,786 198,500
Real estate held for sale 46,642 46,642
Investment in affiliate 125,000 125,000
Property and equipment (successful efforts) 5,596,140 2,579,865
Less accumulated depreciation, depletion and amortization 144,022 139,419
---------------- ----------------
Net property and equipment 5,452,118 2,440,446
Other assets 988 988
---------------- ----------------
Total assets $ 5,914,982 $ 3,530,252
================ ================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses 1,647,836 419,409
Loans payable to shareholders 195,242 60,000
---------------- ----------------
Total liabilities - current 1,843,078 479,409
---------------- ----------------
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 5,000,000 shares:
None issued and outstanding - -
Common stock, $.001 par value. Authorized 100,000,000
shares: issued and outstanding, 50,902,898 at
September 30, 2001 and 42,799,900 at December 31, 2000 50,903 42,800
Additional paid-in capital 13,245,536 10,910,763
Accumulated deficit (9,224,535) (7,217,720)
---------------- ----------------
4,071,904 3,735,843
Less common stock subscriptions receivable - (685,000)
---------------- ----------------
Total stockholders' equity 4,071,904 3,050,843
Commitments and contingencies
---------------- ---------------
Total liabilities and stockholders' equity $ 5,914,982 $ 3,530,252
================ ================
See accompanying notes to consolidated financial statements.
PANGEA PETROLEUM CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
Three and nine months ended September 30, 2001 and 2000 (Unaudited -
see accompanying accountants' review report)
Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
2001 2000 2001 2000
---- ---- ---- ----
Revenues $ 9,869 $ -- $ 27,871 $ --
Costs and expenses:
Production expenses 59,470 -- 69,340 --
Selling, general and administrative 847,468 811,883 1,965,178 1,044,511
----------- ------------ ----------- ------------
Total operating expenses 906,938 811,883 2,034,518 1,044,511
----------- ------------ ----------- ------------
Operating loss (897,069) (811,883) (2,006,647) (1,044,511)
Other income (expenses):
Loss on disposition of assets -- (54,023) -- (54,023)
Interest expense (46) -- (195) --
Other income (expense) (73) 1,436 27 19,549
----------- ------------ ----------- ------------
Total other income (expense) (119) (52,587) (168) (34,474)
----------- ------------ ----------- ------------
Net loss before income taxes (897,188) (864,470) (2,006,815) (1,078,985)
Provision for income taxes -- -- -- --
----------- ------------ ----------- ------------
Net loss $ (897,188) $ (864,470) $(2,006,815) $ (1,078,985)
=========== ============ =========== ============
Net earnings (loss) per share - basic and diluted:
Net loss $ (0.02) $ (0.04) $ (0.04) $ (0.06)
=========== ============ =========== ============
Weighted average common shares - basic and diluted 50,354,160 24,527,469 50,206,203 17,565,545
=========== ============ =========== ============
See accompanying notes to consolidated financial statements.
PANGEA PETROLEUM CORPORATION AND SUBSIDIARY
Statements of Cash Flows
Nine months ended September 30, 2001 and 2000 (Unaudited - see
accompanying accountants' review report)
2001 2000
---- ----
Cash flows from operating activities:
Net loss $ (2,006,815) $ (1,078,985)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation of property and equipment 4,603 8,948
Issuance of common stock for services 887,297 613,213
Loss on disposition of assets - 54,023
Payroll expense related to employee stock options 253,769 -
(Increase) decrease in operating assets:
Accounts receivable 34,927 33,173
Advances to affiliate - (708,066)
Prepaid expenses - (7,800)
Other assets - 84,589
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses 1,228,427 (40,780)
--------------- ---------------
Net cash provided by (used in) operating activities 402,208 (1,041,685)
--------------- ---------------
Cash flows from investing activities:
Acquisition of oil and gas properties (2,956,275) (23,000)
Proceeds from the sale of assets - 500
Increase in notes receivable from related parties (26,286) -
Cash paid for acquisition - (53,750)
Purchase of real estate held for sale - (46,642)
--------------- ---------------
Net cash used in investing activities (2,982,561) (122,892)
--------------- ---------------
Cash flows from financing activities:
Proceeds from issuance of common stock 903,064 1,254,640
Proceeds from exercise of stock options 923,746 -
Proceeds from short-term borrowing - 22,000
Proceeds from notes payable to related parties 135,242 -
Decrease in bank overdrafts - (5,931)
--------------- ---------------
Net cash provided by financing activities 1,962,052 1,270,709
--------------- ---------------
Net increase (decrease) in cash (618,301) 106,132
Cash at beginning of year 629,186 343
--------------- ---------------
Cash at end of period $ 10,885 $ 106,475
=============== ===============
Supplemental schedule of cash flow information:
Interest paid $ 195 $ -
=============== ===============
Non-cash transactions:
Acquisition of oil and gas properties with common stock $ 60,000 $ -
=============== ===============
See accompanying notes to consolidated financial statements.
PANGEA PETROLEUM CORPORATION
NOTES TO FINANCIALS
1) General
Pangea Petroleum Corporation (the Company) is in the business of producing oil
and gas from proven reserves.
The accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information and with the instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States of America for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the three and nine month
periods ended September 30, 2001 are not indicative of the results that may be
expected for the year ending December 31, 2001.
As contemplated by the Securities and Exchange Commission (SEC) under Rule 10-01
of Regulation S-X, the accompanying financial statements and related footnotes
have been condensed and do not contain certain information that will be included
in the Company's annual financial statements and footnotes thereto. For further
information, refer to the Company's audited financial statements and related
footnotes thereto included in the Company's annual report on Form 10-KSB for the
year ended December 31, 2000.
Oil and Gas Producing Activities
The Company follows the "successful efforts" method of accounting for its oil
and gas properties. Under this method of accounting, all property acquisition
costs (cost to acquire mineral interests in oil and gas properties) and costs
(to drill and equip) 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 in commercial quantities,
the costs associated with the well are charged to expense. The costs of
development wells are capitalized whether productive or nonproductive.
Geological and geophysical costs and the costs of carrying and retaining
undeveloped properties are expensed as incurred. Management estimates that the
salvage value of lease and well equipment will approximately offset the future
liability for plugging and abandonment of the related wells. Accordingly, no
accrual for such costs has been recorded.
Unproved oil and gas properties that are individually significant are
periodically assessed for impairment of value, and a loss is recognized at the
time of impairment by providing an impairment allowance. Other unproved
properties are amortized based on the Company's experience of successful
drilling and average holding period. Capitalized costs of producing oil and gas
properties, after considering estimated dismantlement and abandonment costs and
estimated salvage values, are depreciated and depleted by the unit-of-production
method.
PANGEA PETROLEUM CORPORATION
NOTES TO FINANCIALS
On the sale or retirement of a complete unit of a proved property, the cost and
related accumulated depreciation, depletion, and amortization are eliminated
from the property accounts, and the resultant gain or loss is recognized. On the
retirement or sale of a partial unit of proved property, the cost is charged to
accumulated depreciation, depletion, and amortization with a resulting gain or
loss recognized in income.
On the sale of an entire interest in an unproved property for cash or cash
equivalent, gain or loss on the sale is recognized, taking into consideration
the amount of any recorded impairment if the property had been assessed
individually. If a partial interest in an unproved property is sold, the amount
received is treated as a reduction of the cost of the interest retained.
(2) Liquidity
The Company incurred a significant operating loss in 2000 and the nine months
ended September 30, 2001. Approximately 75% of the loss was due to non-cash
operating expenses (e.g., issuance of common stock for services). Cash operating
expenses, primarily energy projects, were funded by the completion of a
long-term equity financing package, various private placements of restricted
common stock and exercise of stock options by the Company officers. Management
believes that funds will be available to finance current and future energy
projects and to finance other operating costs over the next twelve months.
Item 2. Management's Discussion and Analysis
- ---------------------------------------------
GENERAL
Pangea Petroleum Corporation, a Colorado corporation, was organized on March
11,1997, as Zip Top, Inc. On December 11,1998, we changed our name to Pangea
Petroleum Corporation. Pangea has offices at 6776 SW Freeway,Suite 620, Houston,
Texas 77074. Pangea is engaged in the energy business primarily in Texas and
California. Pangea's business plan includes the acquisition and investments in
oil and gas properties. However, for the quarter ending September 30, 2000,
Pangea was primarily engaged in a technology venture, Worldlink USA and
investments in small energy projects. In October of 2000, with the acquisition
of Mass Energy, the Company changed its strategy to focus on active exploration
and drilling. This acquisition allowed the company to undertake the development
of two major oil and gas projects and several smaller projects. Pangea started
deriving revenue from the first of their completed wells (Jackson County, Texas)
at the end of June,2001. Pangea has also started accruing revenue from its Duval
County, Texas well although this revenue will appear on the fourth quarter
financial statement.
Throughout2001, the Company will continue to develop their oil and gas leases
and will invest in other projects that offer good prospects for the growth of
the Company. The current depressed state of the energy industry has had a
negative impact on the Company's financial health and we are actively seeking
other investment opportunities.
Results of Operations
Three Months Ended September 31, 2001 and 2000
Pangea starting generating revenue from its first completed project at the end
of June, 2001. The Company expects to continue to receive revenue from the
Jackson County project and other energy projects.
Substantial investments were made in oil and gas leases thus, increasing the
property and equipment asset from the three months ended September 31, 2000.
Current liabilities have increased since several drilling projects were
undertaken. The revenue linked to these increased expenses started at the end of
June with the completion of the Jackson County, Texas project. This well, along
with the Duval County, Texas well, will continue to show revenue in the fourth
quarter financials.
Liquidity, Capital Resources and Financial Condition
The increased loss compared to September 30, 2000 is directly attributable to
the change in strategy to focus primarily on energy projects and related
drilling activity. The Company currently anticipates that its existing cash and
cash equivalents balance will fund operations at the current level of activity
into the fourth quarter of 2001. The Company will need to raise additional funds
through additional debt or equity financing. There can be no assurance that
additional equity or debt financing will be available when needed or on terms
acceptable to the Company.
The market price of the Company's common stock has fluctuated significantly
since it began to be publicly traded in 1997 and may continue to be highly
volatile. Factors such as the ability of the Company to achieve development
goals, ability of the Company to profitably complete energy projects, the
ability of the Company to raise additional funds, general market conditions and
other factors affecting the Company's business that are beyond the Company's
control may cause significant fluctuations in the market price of the Company's
common stock. The market prices of the stock of many energy companies have
fluctuated substantially, often unrelated to the operating or research and
development performance of the specific companies. Such market fluctuations
could adverselyaffect the market price for the Company's common stock.
FORWARD LOOKING STATEMENTS
This report contains statements which, to the extent that they are not
recitations of historical fact, may constitute forward looking statements within
the meaning of applicable federal securities laws and are based on the Company's
current expectations and assumptions. These expectations and assumptions are
subject to a number of risks and uncertainties which could cause actual results
to differ materially from those anticipated, which include but are not limited
to the following: ability of the Company to achieve development goals, ability
of the Company to profitably complete energy projects, the ability of the
Company to raise additional funds and other factors affecting the Company's
business that are beyond the Company's control. All forward looking statements
contained in this report are intended to be subject to the safe harbor
protection provided by applicable federal securities laws.
Item 3. Quantitave and Qualitative Disclosures About Market Risk
- -----------------------------------------------------------------
Market risk represents the risk of loss that may impact our financial position,
results of operations or cash flows due to adverse changes in market prices and
rates. We are exposed to market risk because of changes in foreign currency
exchange rates as measured against the U.S. dollar. We do not anticipate that
near-term changes in exchange rates will have a material impact on our future
earnings, fair values or cash flows. However, there can be no assurance that a
sudden and significant decline in the value of European currencies would not
have a material adverse effect on our financial conditions and results of
operations.
Our short-term bank debt bears interest at variable rates; therefore our results
of operations would only be affected by interest rate changes to the short-term
bank debt outstanding. An immediate 10 percent change in interest rates would
not have a material effect on our results of operations over the next fiscal
year.
PART II - OTHER INFORMATION
Table of Contents
Item 1 - Legal Proceedings
Item 2 - Changes in Securities and Use of Proceeds
Item 3 - Defaults Upon Senior Securities
Item 4 - Submission of Matters to a Vote of Security Holders
Item 5 - Other Information
Item 6 - Exhibits and Reports on Form 8-K
SIGNATURES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on November 19, 2001.
PANGEA PETROLEUM CORPORATION
By: /s/ Charles B. Pollock
- ---------------------------------------------
Charles B. Pollock, Chairman of the Board,
and Chief Executive Officer
Date: November 19, 2001