FORM 10-Q/A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from ________ to_______
Commission file number 1-12108
GULFWEST ENERGY INC.
--------------------
(Exact name of Registrant as specified in its charter)
Texas 87-0444770
---------------------------- -------------------
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
480 North Sam Houston Parkway East
Suite 300
Houston, Texas 77060
---------------------------------------- ----------
(Address of principal executive offices) (zip code)
(281) 820-1919
---------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(D) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES __X__ NO ____
The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date, November 10, 2004, was 18,593,969
shares of Class A Common Stock, $.001 par value.
EXPLANATORY NOTE
This Quarterly Report on Form 10-Q/A is intended to amend and restate
in its entirety the Company's Quarterly Report on Form 10-Q for the period ended
September 30, 2004, which was filed on November 12, 2004 (the "Original Form
10-Q"), to ensure that the information contained in the report is true, accurate
and complete as of the date of the filing of this Amended Quarterly Report on
Form 10-Q/A, February 25, 2004. Accordingly, pursuant to rule 12b-15 under the
Securities Exchange Act of 1934, as amended, this Form 10-Q/A contains the
complete text of items 1, 2, 4 and 6 of Part I and items 4 and 6 of Part II, as
amended, as well as certain currently dated certifications. Unaffected items
have not been repeated in this Amendment No. 1.
In February 2004, we determined that 281,000 options we issued should
have been classified as variable options rather than intrinsic value options. As
a result, we accrued $70,250 in additional compensation expense. This amendment
reflects the results of the classification in the financial statements and notes
thereto. The net effect of these revisions was to decrease total liabilities and
stockholders' equity at, or for the quarter ended September 30, 2004 by $70,250
and $70,250, respectively. Such revisions had minimal impact on our consolidated
statements of income, cash flows, comprehensive income or changes in
stockholders' equity.
All other information in the report remains as previously filed with
the Commission in the Company's Quarterly Report on Form 10-Q for the period
ended September 30, 2004 and is incorporated by reference herein.
This amendment does not reflect events occurring after the filing of
the Original Form 10-Q, and does not modify or update the disclosures therein in
any way other than as required to reflect the amendments as described above and
set forth below.
GULFWEST ENERGY INC.
FORM 10-Q/A FOR THE QUARTER ENDED
SEPTEMBER 30, 2004
Page of
FORM 10-Q/A
Part I: Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets, September 30, 2004
and December 31, 2003 3
Consolidated Statements of Operations for the three months
and nine months ended September 30, 2004 and 2003 5
Consolidated Statements of Cash Flows for the nine
months ended September 30, 2004 and 2003 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 10
Part II: Other Information
Item 6. Exhibits and Reports on 8-K 14
Signatures 15
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
GULFWEST ENERGY INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2004 AND DECEMBER 31, 2003
ASSETS
September 30, December 31,
2004 2003
(Unaudited) (Audited)
-------------- ------------
(Restated)
CURRENT ASSETS:
Cash and cash equivalents $ 991,555 $ 483,618
Accounts Receivable - trade, net of allowance for
doubtful accounts of -0- in 2004 and 2003 1,445,879
1,099,802
Prepaid expenses 244,684 159,269
------------ ------------
Total current assets 2,682,118 1,742,689
------------ ------------
OIL AND GAS PROPERTIES
Using the successful efforts method of accounting 55,960,490 58,472,886
OTHER PROPERTY AND EQUIPMENT 1,828,769 2,132,220
Less accumulated depreciation, depletion
and amortization (9,452,293) (10,017,931)
------------ ------------
Net oil and gas properties, and
other property and equipment 48,336,966 50,587,175
------------ ------------
OTHER ASSETS:
Deposits 20,142 20,142
Debt issue cost, net 2,124,289 78,768
------------ ------------
Total other assets 2,144,431 98,910
------------ ------------
TOTAL ASSETS $ 53,163,515 $ 52,428,774
============ ============
The Notes to Consolidated Financial Statements are an integral part of these
statements.
3
GULFWEST ENERGY INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2004 AND DECEMBER 31, 2003
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
2004 2003
------------ ------------
(Unaudited) (Audited)
------------ ------------
(Restated)
CURRENT LIABILITIES
Notes payable $ 5,106,568 $ 8,182,165
Notes payable - related parties 2,140,000 1,465,000
Current portion of long-term debt 686,147 29,396,092
Current portion of long-term debt - related parties 115,284 130,152
Accounts payable - trade 4,077,890 5,002,675
Accrued expenses 592,237 443,568
------------ ------------
Total current liabilities 12,718,126 44,619,652
------------ ------------
NONCURRENT LIABILITIES
Long-term debt, net of current portion 21,374,396 35,801
Asset retirement obligations 1,083,036 1,357,206
------------ ------------
Total noncurrent liabilities 22,457,432 1,393,007
------------ ------------
OTHER LIABILITIES
Derivative instruments 3,013,131 591,467
------------ ------------
Total liabilities 38,118,689 46,604,126
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock 270 190
Common stock 18,493 18,493
Additional paid-in capital 34,063,386 29,283,692
Retained deficit (19,107,323) (23,477,727)
------------ ------------
Total stockholders' equity 14,974,826 5,824,648
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 53,163,515 $ 52,428,774
============ ============
The Notes to Consolidated Financial Statements are an integral part of these
statements.
4
GULFWEST ENERGY INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED
SEPTEMBER 30, 2004 AND 2003
(UNAUDITED)
Three Months Nine Months
Ended September 30, Ended September 30,
2004 2003 2004 2003
----------- ------------ ------------ ------------
(Restated) (Restated)
OPERATING REVENUES
Oil and gas sales $ 2,816,386 $ 2,400,967 $ 7,811,373 $ 8,375,986
Operating overhead and other income (13,440) 35,096 65,568 100,804
------------ ------------ ------------ ------------
Total Operating Revenues 2,802,946 2,436,063 7,876,941 8,476,790
------------ ------------ ------------ ------------
OPERATING EXPENSES
Lease operating expenses 1,149,771 1,434,002 3,749,027 4,196,377
Depreciation, depletion and amortization 526,277 540,312 1,402,522 1,714,921
Accretion expense 16,287 57,003
General and administrative 568,439 380,176 1,442,072 1,214,660
------------ ------------ ------------ ------------
Total Operating Expenses 2,260,774 2,354,490 6,650,624 7,125,958
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 542,172 81,573 1,226,317 1,350,832
------------ ------------ ------------ ------------
OTHER INCOME AND EXPENSE
Interest expense (1,036,591) (756,212) (2,971,368) (2,328,862)
Other financing costs (532,728) (901,998) (1,000,000)
Loss on sale of assets (1,891,707) (19,848) (2,118,516) (19,848)
Unrealized gain (loss) on derivative Instruments (1,862,729) 295,030 (2,421,664) 487,197
Abandoned property (326,512)
Forgiveness of debt 11,884,145
------------ ------------ ------------ ------------
Total Other Income and Expense (5,323,755) (481,030) 3,144,087 (2,861,513)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (4,781,583) (399,457) 4,370,404 (1,510,681)
INCOME TAXES ------------ ------------ ------------ ------------
NET INCOME (LOSS) (4,781,583) (399,457) 4,370,404 (1,510,681)
DIVIDENDS ON PREFERRED STOCK (Paid 2004 - 0; 2003 - 0) 124,375 256,084
------------ ------------ ------------ ------------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ (4,905,958) $ (399,457) $ 4,114,320 $ (1,510,681)
============ ============ ============ ============
NET INCOME (LOSS) PER SHARE, BASIC $ (.27) $ (.02) $ .22 $ (.08)
============ ============ ============ ============
DILUTED $ (.27) $ (.02) $ .14 $ (.08)
============ ============ ============ ============
The Notes to Consolidated Financial Statements are an integral part of these
statements.
5
GULFWEST ENERGY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(UNAUDITED)
2004 2003
----------- -----------
(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 4,370,404 $ (1,510,681)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion, and amortization 1,402,522 1,714,921
Accretion expense 57,003
Debt issue cost expense 859,498
Discount on note payable 261,238
Common stock warrants issued and charged to operations 25,500
Other financing costs 1,000,000
Notes payable issued and charged to earnings
61,046
Loss on sale of assets 2,118,516 19,848
Abandoned property 326,512
Unrealized (gain) loss on derivate instruments 2,421,664 (487,197)
Forgiveness of debt (11,884,145)
(Increase) decrease in accounts receivable - trade, net (46,077) 97,612
(Increase) decrease in prepaid expenses (85,415) (70,230)
Increase (decrease) in accounts payable and accrued expenses (597,162) 346,230
------------ ------------
Net cash provided by (used in) operating activities (734,396) 1,136,003
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of property and equipment 1,200,350 561
Purchase of property and equipment (3,272,059) (911,201)
------------ ------------
Net cash used in investing activities (2,071,709) (910,640)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds on sale of preferred stock, net 3,363,745
Payments on debt (17,806,173) (1,441,235)
Proceeds from debt issuance 19,880,258 823,164
Debt issue cost (2,123,788)
------------ ------------
Net cash provided by (used in) financing activities 3,314,042 (618,071)
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 507,937 (392,708)
CASH AND CASH EQUIVALENTS, beginning of period 483,618 687,694
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 991,555 $ 294,986
============ ============
CASH PAID FOR INTEREST $ 2,821,404 $ 2,183,842
============ ============
The Notes to Consolidated Financial Statements are an integral part of these
statements.
6
GULFWEST ENERGY INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004 AND 2003
(UNAUDITED)
1. During interim periods, we follow the accounting policies set forth in
our Annual Report on Form 10-K filed with the Securities and Exchange
Commission. Users of financial information produced for interim periods
are encouraged to refer to the footnotes contained in the Annual Report
when reviewing interim financial results.
2. The accompanying financial statements include the Company and its
wholly-owned subsidiaries: RigWest Well Service, Inc. formed September
5, 1996; GulfWest Texas Company formed September 23, 1996; DutchWest
Oil Company formed July 28, 1997; Southeast Texas Oil and Gas Company,
L.L.C. acquired September 1, 1998; SETEX Oil and Gas Company formed
August 11, 1998; GulfWest Oil & Gas Company formed February 8, 1999;
LTW Pipeline Co. formed April 19, 1999; GulfWest Development Company
formed November 9, 2000; and, GulfWest Oil & Gas Company (Louisiana)
LLC formed July 31, 2001. All material intercompany transactions and
balances are eliminated upon consolidation.
3. In management's opinion, the accompanying interim financial statements
contain all material adjustments, consisting only of normal recurring
adjustments necessary to present fairly the financial condition, the
results of operations, and the statements of cash flows of GulfWest
Energy Inc. for the interim periods.
4. Non-cash Investing and Financing
During the nine month period ended September 30, 2004, we issued a note
payable for $600,000 in exchange for an account payable for $538,954
and $61,046 of interest expense was recorded. Also, as a result of
refinancing debt we issued common stock warrants valued at $916,029
which were recorded as a note discount, issued $500,000 of preferred
stock of a wholly owned subsidiary as a commission to a financial
advisor, recorded a $360,000 payable for a loan termination fee and had
$11,884,145 in debt forgiven by the prior lender. We also financed
field trucks for $78,036,
During the nine month period ended September 30, 2003, we decreased the
current portion of long term debt - related parties by applying $17,300
in deposits and reclassified $176,324 from accrued expenses to current
portion of long term debt. Also during the period, $1 million in
preferred stock was issued to an energy lender as required by an
agreement that expired on May 29,2003.
5. As a result of a financing agreement with an energy lender, we were
required to enter into an oil and gas hedging agreement with the
lender. It has been determined this agreement meets the definition of
SFAS 133 "Accounting for Derivative Instruments and Hedging Activities"
and is accounted for as a derivative instrument.
We entered into an agreement, commencing in May 2000, to hedge a
portion of our oil and gas sales for the period of May 2000 through
April 2004. The agreement calls for initial volumes of 7,900 barrels of
oil and 52,400 Mcf of gas per month, declining monthly thereafter. We
entered into an additional agreement with the energy lender, commencing
September 2001, to hedge an additional portion of our oil and gas sales
for the periods of September 2001 through July 2004
7
and September 2001 through December 2003, respectively. The agreement
calls for the initial volumes of 15,000 barrels of oil and 50,000 Mmbtu
of gas per month, declining monthly thereafter. These agreements were
terminated in April 2004 with the refinancing of the related debt. We
entered into a second agreement, as a result of refinancing the debt,
commencing May 2004, to hedge a portion of our oil and gas sales for
the period of May 2004 through October 2005. The agreement calls for
10,000 barrels of oil and 60,000 Mmbtu of gas per month. As a result of
these agreements, we realized a decrease in revenues of $1,154,349 for
the nine month period ended September 30, 2004 and a decrease in
revenues of $1,209,982 for the nine month period ended September 30,
2003, which is included in oil and gas sales.
The estimated change in fair value of the derivatives is reported in
Other Income and Expense as unrealized (gain) loss on derivative
instruments. The estimated fair value of the derivatives is reported in
Other Assets (or Other Liabilities) as derivative instruments.
6. Stock Based Compensation
In October 1995, SFAS No. 123, "Stock Based Compensation," (SFAS 123)
was issued. This statement requires that we choose between two
different methods of accounting for stock options and warrants. The
statement defines a fair-value-based method of accounting for stock
options and warrants but allows an entity to continue to measure
compensation cost for stock options and warrants using the accounting
prescribed by APB Opinion No. 25 (APB 25), "Accounting for Stock Issued
to Employees." Use of the APB 25 accounting method results in no
compensation cost being recognized if options are granted at an
exercise price at the current market value of the stock or higher. We
will continue to use the intrinsic value method under APB 25 but are
required by SFAS 123 to make pro forma disclosures of net income (loss)
and earnings (loss) per share as if the fair value method had been
applied in its 2004 and 2003 financial statements.
If we had used the fair value method required by SFAS 123, our net loss
and per share information would approximate the following amounts:
Three months 2004 2003
--------------------------- ------------------------------------- -------------------------------------
As Reported Proforma As Reported Proforma
SFAS 123 compensation cost $ $ 420,250 $ $
APB 25 compensation cost $ $ $ $
Net income (loss) $ (4,905,958) $ (5,326,208) $ (399,457) $ (399,457)
Income (loss) per
common share,
Basic $ (.27) $ (.29) $ (.04) $ (.04)
Diluted $ (.27) $ (.29) $ (.04) $ (.04)
8
Nine months 2004 2003
--------------------------- ------------------------------------ -------------------------------------
As Reported Proforma As Reported Proforma
SFAS 123 compensation cost $ $ 425,500 $ $ 7,350
APB 25 compensation cost $ $ $ $
Net income (loss) $ 4,114,320 $ 3,688,820 $ (1,510,681) $ (1,518,031)
Income (loss) per
common share,
Basic $ .22 $ .20 $ (.08) $ (.08)
Diluted $ .14 $ .12 $ (.08) $ (.08)
7. In February 2005, we determined that many of the 1,525,000 options we
issued on July 15, 2004 were improperly characterized as incentive
stock options. In addition 281,000 of these options were improperly
expensed as options entitled to fixed accounting treatment rather than
as options subject to variable award accounting treatment. In
connection with the correction of these errors, we adopted the GulfWest
Energy Inc. 2004 Stock Option and Compensation Plan to govern the terms
of the options that were granted on July 15, 2004 and obtained the
consent of the employees granted such options to the change in their
characterization to being non-qualified stock options.
As a result of the change in the option accounting characterization, we
accrued $70,250 in compensation expense. The significant effects of the
revisions on our statement of income, cash flows consolidated balance
sheet from the amounts previously reported are summarized in the
following table:
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30, 2004
------------------------------------------------------------
As Reported Adjustment Restated
------------- -------------- ----------
General and administrative $ 498,189 $ 70,250 $ 568,439
Total operating expenses $ 2,190,524 $ 70,250 $ 2,260,774
Net income (loss) $ (4,835,708) $ (70,250) $(4,905,958)
Nine Months Ended September 30, 2004
------------------------------------------------------------
As Reported Adjustments Restated
------------- -------------- ----------
General and administrative $ 1,371,822 $ 70,250 $1,442,072
Total operating expenses $ 6,580,374 $ 70,250 $6,650,624
Net income (loss) $ 4,184,570 $ (70,250) $4,114,320
9
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2004
---------------------------------------------------------------------------------
As Reported Adjustment Restated
----------------------- ------------------------- ----------------------
Increase (decrease) in
accounts payable and accrued
expenses $ (667,412) $ 70,250 $ (597,162)
CONSOLIDATED BALANCE SHEET
September 30, 2004
---------------------------------------------------------------------------------
As Reported Adjustment Restated
----------------------- ------------------------- ----------------------
Accrued expenses $ 521,987 $ 70,250 $ 592,237
Total current liabilities $ 12,647,876 $ 70,250 $ 12,718,126
Retained deficit $ (19,037,073) $ (70,250) $ (19,107,323)
8. As shown in the financial statements, we had a working capital
deficiency of $10,036,008 at September 30, 2004 and $42,876,963 for the
year ended December 31, 2003. This and other conditions raise
substantial doubt about our ability to continue as a going concern.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We are engaged primarily in the acquisition, development, exploitation,
exploration and production of crude oil and natural gas. Our focus is on
increasing production from our existing crude oil and natural gas properties
through the further exploitation, development and optimization of those
properties, and on acquiring additional crude oil and natural gas properties.
Our gross revenues are derived from the following sources:
1. OIL AND GAS SALES that are proceeds from the sale of crude oil and
natural gas production to midstream purchasers;
2. OPERATING OVERHEAD AND OTHER INCOME that consists of earnings from
operating crude oil and natural gas properties for other working
interest owners, and marketing and transporting natural gas. This also
includes earnings from other miscellaneous activities.
RESULTS OF OPERATIONS
The factors which most significantly affect our results of operations
are (1) the sales price of crude oil and natural gas, (2) the level of total
sales volumes of crude oil and natural gas, (3) the level of and interest rates
on borrowings and, (4) the level and success of new acquisitions and development
of existing properties.
Comparative results of operations for the periods indicated are discussed below.
THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2004 COMPARED TO THREE MONTH PERIOD ENDED
SEPTEMBER 30, 2003.
REVENUES
Oil and Gas Sales. Revenues from the sale of crude oil and natural gas
for the quarter increased 17% from $2,401,000 in 2003 to $2,816,400 in 2004 due
to higher commodity prices offset by lower production volumes and the sale of
two properties in West Texas and one property in Oklahoma. The lower production
volumes were due to the natural decline in production from our Gulf Coast
fields. We have implemented a development plan which should result in increased
production in future quarters.
Operating Overhead and Other Income. Revenues from these activities
decreased from $35,100 in 2003 to $(13,400) in 2004. This was due to
fluctuations in prices of natural gas in our imbalance accounts.
COSTS AND EXPENSES
Lease Operating Expenses. Lease operating expenses decreased 20% from
$1,434,000 in 2003 to $1,149,800 in 2004 due to lower production volumes and the
sale of two properties in West Texas and one property in Oklahoma.
11
Depreciation, Depletion and Amortization (DD&A). DD&A decreased 3% from
$540,300 in 2003 to $526,300 in 2004, due to lower commodity sales volumes.
General and Administrative (G&A) Expenses. G&A expenses increased 50%
for the period from $380,200 in 2003 to $568,400 in 2004, due to increased costs
related to our financing activities.
Interest Expense. Interest expense increased 37% from $756,200 in 2003
to $1,036,600 in 2004, primarily due to a significant increase in our interest
rate following our refinancing.
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2004 COMPARED TO NINE-MONTH PERIOD ENDED
SEPTEMBER 30, 2003.
REVENUES
Oil and Gas Sales. Revenues from the sale of crude oil and natural gas
for the period decreased 7% from $8,376,000 in 2003 to $7,811,400 in 2004 due to
lower production volumes and the sale of two properties in West Texas and one
property in Oklahoma. Our development plan to increase production did not start
until May 2004.
Operating Overhead and Other Income. Revenues from these activities
decreased 35% from $100,800 in 2003 to $65,600 in 2004. This was due to
fluctuations in prices of natural gas in our imbalance accounts.
COSTS AND EXPENSES
Lease Operating Expenses. Lease operating expenses decreased 11% from
$4,196,400 in 2003 to $3,749,000 in 2004 due to lower production volumes and the
sale of two properties in West Texas and one property in Oklahoma.
Depreciation, Depletion and Amortization (DD&A). DD&A decreased 18%
from $1,714,900 in 2003 to $1,402,500 in 2004, due to lower commodity sales
volumes.
General and Administrative (G&A) Expenses. G&A expenses increased 19%
for the period from $1,214,700 in 2003 to $1,442,100 in 2004, due to increased
costs related to our financing activities.
Interest Expense. Interest expense increased 28% from $2,328,900 in
2003 to $2,971,400 in 2004, due to a significant increase in our interest rate
following our refinancing.
12
FINANCIAL CONDITION AND CAPITAL RESOURCES
At September 30, 2004, our current liabilities exceeded our current
assets by $10,036,008. We had a loss of $4,905,958 for the quarter compared to a
loss of $399,457 for the period in 2003. The loss for 2004 included a non-cash
loss of approximately $1.9 million associated with the change in our estimate of
the fair value of our hedge, approximately $1.9 million loss on the sale of
assets and approximately $500,000 of amortization of expenses associated with
our refinancing.
During the third quarter of 2004, our sales volumes were 40,733 barrels
of crude oil and 272,611 Mcf of natural gas compared to 49,330 barrels of crude
oil and 263,561 Mcf of natural gas in the third quarter of 2003. Revenue for
crude oil sales for the period was $1,332,744 in 2004 compared to $1,176,604 in
2003 and for natural gas sales was $1,483,642 in 2004 compared to $1,224,363 in
2003.
During the nine-month period ended September 30, 2004 our sales volumes
were 127,530 barrels of oil and 756,614 Mcf of natural gas compared to 169,953
barrels of oil and 908,346 Mcf of natural gas for the period in 2003. Revenue
for crude oil sales for the period was $3,861,893 in 2004 compared to $4,076,097
in 2003 and for natural gas sales was $3,949,480 in 2004 compared to $4,299,889
in 2003.
On April 27, 2004, in our wholly-owned subsidiary, GulfWest Oil and
Gas Company, we completed an $18,000,000 financing package with a new energy
lender. We used $15,700,000 to retire existing debt of $27,584,145, resulting in
forgiveness of debt of $11,884,145. This taxable gain will be completely offset
by available net operating loss carryforwards. The term of the note is eighteen
months and it bears interest at the prime rate plus 11%. This rate increases by
.75% per month beginning in month ten. We paid the new lender $1,180,000 in cash
fees and also issued the new lender warrants to purchase 2,035,621 shares of our
common stock at an exercise price of $.01 per share, expiring in five years. The
warrants are subject to demand registration and anti-dilution provisions.
Simultaneously, our wholly-owned subsidiary, GulfWest Oil & Gas
Company, completed the initial phase of a private offering of its Series A
Preferred Stock for $4,000,000. The Series A Preferred Stock is exchangeable for
our Common Stock based on a liquidation value of $500 per share of Series A
Preferred Stock divided by $.35 per share of our Common Stock. As part of a fee
and commission, we issued $500,000 of the Series A Preferred Stock to a
financial advisor. One of our directors acquired $1,500,000 of the Series A
Preferred Stock.
Of the $21,500,000 total cash raised, we used $15,700,000 to pay
existing debt and $1,580,000 to pay fees and commissions, leaving $4,220,000
available for capital expenditures and working capital.
As of September 30, 2004 we have incurred $2,983,787 in loan fees.
This includes lender fees of $1,540,000 ($1,180,000 paid in cash and a $360,000
fee due at the termination of the loan), financial advisor fees of $1,150,000,
which includes the $500,000 of Series A Preferred Stock, and $293,787 for other
professional fees. Also, the lender charges a quarterly administrative fee of
$25,000. These costs are being amortized over the term of the loan and are
included in other financing costs.
In addition we issued the lender warrants valued at $916,029. The
value of the warrants is recorded as a note discount and is being expensed over
the term of the loan and included in interest expense.
13
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits -
NUMBER DESCRIPTION
------ -----------
*3.1 Articles of Incorporation of the Registrant and Amendments thereto.
&3.3 Amendment to the Company's Articles of Incorporation to increase the
number of shares of Class A Common Stock that the Company will have
authority to issue from 20,000,000 to 40,000,000 shares, approved by
the Shareholders on November 19, 1999and filed with the Secretary of
State of Texas on December 3, 1999.
#3.2 Amendment to the Articles of Incorporation of the Registrant changing
the name of the Registrant to "GulfWest Energy Inc.", approved by the
Shareholders on May 18, 2001 and filed with the Secretary of Texas on
May 21, 2001.
*3.4 Bylaws of the Registrant.
#10.1 GulfWest Oil Company 1994 Stock Option and Compensation Plan, amended
and restated as of April 1, 2001, and approved by the shareholders on
May 18, 2001.
31.1 Certification of Chief Executive Officer pursuant to Exchange rule
13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002; filed herewith.
31.2 Certification of Chief Financial Officer pursuant to Exchange rule
13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002; filed herewith.
32 Certification pursuant to 18. U.S.C Section 1350 pursuant to Section
906 of the Sarbanes-Oxley Act of 2002; filed herewith.
* Previously filed with the Registrant's Registration Statement (on Form
S-1, Reg. No. 33-53526), filed with the Commission on October 21,
1992.
& Previously filed with the Registrant's Definitive Proxy Statement,
filed with the Commission on October 18, 1999.
# Previously filed with the Registrant's Definitive Proxy Statement,
filed with the Commission on April 16, 2001.
(b) Form 8-K - None. 14
14
SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
GULFWEST ENERGY INC.
(Registrant)
Date: February 24, 2005
by: /S/ THOMAS R. KAETZER
--------------------------------
Thomas R. Kaetzer
President
Date: February 24, 2005
by: /S/ JIM C. BIGHAM
--------------------------------------
Jim C. Bigham
Executive Vice President and Secretary
Date: February 24, 2005
by: /S/ RICHARD L. CREEL
--------------------------------------
Richard L. Creel
Vice President of Finance
15