SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report
April 21, 1998
VAALCO ENERGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 000-20928 76-0274813
(STATE OR OTHER JURISDICTION OF (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
4600 POST OAK PLACE, SUITE 309
HOUSTON, TEXAS 77027
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(713) 623-0801
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
================================================================================
This Current Report on Form 8-K/A amends and supersedes, to the extent
set forth herein, subsection (a) of Item 7 of the Registrant's Current Report on
Form 8-K, as filed with the Securities and Exchange Commission on May 6,1998.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired
1. Financial Statements of 1818 Oil Corp.
The financial statements of 1818 Oil Corp. are attached as Schedule B to
this Form 8-K/A.
Schedule B
1818 OIL CORP.
FINANCIAL STATEMENTS
For the years ended December 31, 1997 and 1996,
and the period from September 13, 1995
(commencement of operations)
through December 31, 1995
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
1818 Oil Corp.:
We have audited the accompanying balance sheets, including the schedule of
investments, of 1818 OIL CORP. as of December 31, 1997 and 1996, and the related
statements of operations, changes in stockholder's equity and cash flows for the
years ended December 31, 1997 and 1996 and the period from September 13, 1995
(commencement of operations) through December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of 1818 Oil Corp. at December 31,
1997 and 1996, and the results of its operations and its cash flows for the
years ended December 31, 1997 and 1996, and the period from September 13, 1995
(commencement of operations) through December 31, 1995, in conformity with
generally accepted accounting principles.
As explained in Note 2 to the financial statements, an investment amounting to
$1,803,322 and $11,043,300 (100 percent of total investments) as of December 31,
1997 and 1996, respectively, has been valued at fair value as determined by
management. We have reviewed procedures applied by management in arriving at its
estimate of the value of such investments and have inspected underlying
documentation and, in the circumstances, we believe the procedures are
reasonable and the documentation appropriate. However, because of the inherent
uncertainty of valuation, management's estimates of fair value may differ form
the values that would have been used had a ready market for the investment
existed, and the differences could be material.
As explained in Note 7 to the financial statements 1818 Oil Corp. entered into a
Stock Acquisition Agreement and Plan of Reorganization with VAALCO Energy, Inc.
/s/ COOPERS & LYBRAND L.L.P.
New York, New York
February 27, 1998.
2
1818 OIL CORP.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS: 1997 1996
------------ ------------
Cash ................................................ $ 1,105 $ 1,731
Interest-bearing deposits at Brown Brothers
Harriman & Co. .................................... 31,255 29,255
Investment In Hunt Overseas Exploration Company,
L.P., at fair value (cost of $16,393,405 and
$11,043,300, respectively) ........................ 1,803,322 11,043,300
------------ ------------
Total assets .................................. $ 1,835,682 $ 11,074,286
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY:
Accrued interest payable ............................ $ 2,871,625 $ 1,154,344
Long term debt payable .............................. 12,295,054 8,282,475
------------ ------------
Total liabilities ............................. 15,166,679 9,436,819
Common stock (par value $0.01 per share, 1,000 shares
authorized, 229 and 163 shares issued and
outstanding, respectively) ........................ 2 2
Paid in capital ..................................... 4,098,349 2,760,823
Accumulated deficit ................................. (17,429,348) (1,123,358)
------------ ------------
Total stockholder's equity .................... (13,330,997) 1,637,467
------------ ------------
Total liabilities and stockholder's equity .... $ 1,835,682 $ 11,074,286
============ ============
The accompanying notes are an integral part of these financial statements.
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1818 OIL CORP.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996, AND THE PERIOD FROM SEPTEMBER
13, 1995 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1995
1997 1996 1995
------------ --------- ---------
Revenues:
Interest income .......... $ 1,374 $ 3,961 $ 27,025
------------ --------- ---------
Expenses:
Interest Expense ......... 1,717,281 966,053 188,291
------------ --------- ---------
Total expenses ..... 1,717,281 966,053 188,291
------------ --------- ---------
(1,715,907) (962,092) (161,266)
Net increase in unrealized
depreciation ................. (14,590,083) -- --
------------ --------- ---------
Net loss ................. $(16,305,990) $(962,092) $(161,266)
============ ========= =========
The accompanying notes are an integral part of these financial statements.
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1818 OIL CORP.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996, AND THE PERIOD FROM SEPTEMBER
13, 1995 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1995
COMMON STOCK
-------------- PAID IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ------- ----------- -----
Issuance of Common
stock,
September 13, 1995 .. 100 $1 $ 1,499,999 $ -- $ 1,500,000
Net loss .............. -- - -- (161,266) (161,266)
--- -- ------------ ------------ ------------
Balance at December 31,
1995 .................. 100 1 1,499,999 (161,266) 1,338,734
--- -- ------------ ------------ ------------
Issuance of common
stock ................. 63 1 1,260,824 -- 1,260,825
Net loss .............. -- - -- (962,092) (962,092)
--- -- ------------ ------------ ------------
Balance at December 31,
1996 .................. 163 2 2,760,823 (1,123,358) 1,637,467
--- -- ------------ ------------ ------------
Issuance of common
stock ................. 66 - 1,337,526 -- 1,337,526
Net loss .............. -- - -- (16,305,990) (16,305,990)
--- -- ------------ ------------ ------------
Balance at December 31,
1997 .................. 229 $2 $ 4,098,349 $(17,429,348) $(13,330,997)
The accompanying notes are an integral part of these financial statements.
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1818 OIL CORP.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996, AND THE PERIOD FROM SEPTEMBER
13, 1995 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1995
1997 1996 1995
------------ ----------- -----------
Net loss ........................................ $(16,305,990) $ (962,092) $ (161,266)
Adjustments to reconcile net
loss to net cash (used in) provided by
operating activities: Net increase in unrealized
depreciation of investments .................. 14,590,083 -- --
Decrease (increase) in operating assets:
Interest-bearing deposits ..................... (2,000) 1,733,000 (1,762,255)
Increase (decrease) in operating liabilities:
Accrued interest payable ...................... 1,717,281 966,053 188,291
Management fee payable ........................ 0 0 0
Accrued taxes payable ......................... 0 0 0
------------ ----------- -----------
Total adjustments ......................... 16,305,364 2,699,053 (1,573,964)
------------ ----------- -----------
Net cash (used in)
provided by operating activities .......... (626) 1,736,961 (1,735,230)
------------ ----------- -----------
Cash flows from investing activities:
Investment in Hunt Overseas Exploration
Company, L.P. ............................... (5,350,105) (6,786,200) (4,257,100)
------------ ----------- -----------
Net cash used in investing activities ..... (5,350,105) (6,786,200) (4,257,100)
------------ ----------- -----------
Cash flows from financing activities:
Proceeds from long-term debt payable .......... 4,012,579 3,782,475 4,500,000
Proceeds from issuance of common stock ........ 1,337,526 1,260,825 1,500,000
------------ ----------- -----------
Net cash provided by financing activities ..... 5,350,105 5,043,300 6,000,000
------------ ----------- -----------
Net Increase (decrease) in cash ............... (626) (5,939) 7,670
Cash at beginning of year ....................... 1,731 7,670 0
------------ ----------- -----------
Cash at end of year ........................... $ 1,105 $ 1,731 $ 7,670
============ =========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest .................... -- -- --
Cash paid for taxes ....................... -- -- --
The accompanying notes are an integral part of these financial statements.
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1818 OIL CORP.
SCHEDULE OF INVESTMENTS
At December 31, 1997, the Corporation owned the following investment:
RESTRICTED AND NOT READILY MARKETABLE ESTIMATED FAIR
SECURITIES: COST VALUE
--------------- ---------------
Hunt Overseas Exploration Company, L.P.:
$30.0 Million Limited
Partnership Interests $16,393,405 $ 1,803,322
----------- -----------
TOTAL OF INVESTMENTS CURRENTLY
HELD BY 1818 Oil Corp. (100.0%) $16,393,405 $ 1,803,322
=========== ===========
Amounts are shown as a percentage of total investments at estimated fair value.
The accompanying notes are an integral part of these financial statements.
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1818 OIL CORP.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1818 OIL CORP.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION:
1818 Oil Corp. ("1818 Oil") is a corporation which was organized and
commended operations on September 13, 1995 under the General Corporation
Law of the State of Delaware. 1818 Oil is a wholly owned subsidiary of
1818 Fund II, L.P. (the "Fund"), a limited partnership organized on August
20, 1993 under the Delaware Revised Uniform Limited Partnership Act. The
Fund owns beneficial and legal title to all outstanding equity and voting
securities of 1818 Oil. The general partner of the Fund is Brown Brothers
Harriman & Co. ("BBH&Co."), a New York limited partnership. BBH&Co. has
the exclusive power to manage, operate and control the businesses of the
Fund and 1818 Oil and has sole discretion in making investment decisions.
On September 13, 1995, 1818 Oil entered into a subscription agreement to a
purchase Class B limited partnership interest in Hunt Overseas Exploration
Company, L.P. ("HOEC"), a Delaware limited partnership, in the amount of
$30,000,000. The nature of HOEC's business is the exploration of
international oil and gas prospects. Countries in which exploration
activities are conducted by HOEC include Argentina, Canada, Ethiopia,
Niger, Ghana, and Peni. As of December 31, 1997 and 1996, 1818 Oil's
contributed capital to HOEC was $16,393,405 and $11,043,300, respectively.
Within the gross commitment level of $30,000,000 to HOEC, first level
commitments comprise 75% ($22,500,000) and second level commitments
comprise 25% ($7,500,000). First level commitments are associated with
exploration efforts while second level commitments may only be called by
HOEC after a discovery well has been drilled upon any of the properties of
HOEC and may only be used by HOEC in connection with appraisal activities
to evaluate whether such properties are worth of being developed
commercially.
As of December 31, 1997 and 1996, remaining first and second level
commitments were as follows. There have been no second level capital
contributions to date.
1997 1996
--------------- --------------
GROSS COMMITMENT $30,000,000 $30,000,000
=========== ===========
Less: First level capital
contributions $ 5,350,105 $ 6,786,200
Remaining first level capital
commitment $ 6,106,595 $11,456,700
=========== ===========
Less: Second level capital
contributions $ 0 $ 0
Remaining second level capital
commitment $ 7,500,000 $ 7,500,000
=========== ===========
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2. SIGNIFICANT ACCOUNTING POLICIES:
PREPARATION OF FINANCIAL STATEMENTS:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts. Actual results could differ
from those estimates.
INVESTMENTS:
1818 Oil's investments are valued at fair value using methods determined
in good faith by management after consideration of all relevant
information and restrictions on dispositions. The values assigned to the
investments do not necessarily represent amounts which might ultimately be
realized upon the sale or other disposition, since such amounts depend on
future circumstances and cannot reasonably be determined until the actual
liquidation occurs. However, because of the inherent uncertainty of such
valuations, those estimated values may differ significantly from the
values that would have been used had a ready market for the investments
existed, and the differences could be material.
Management has determined to write off exploration costs attributable to a
concession at the time of a dry hole and capitalize costs on a concession
if the concession continues to be the subject of active exploration by
HOEC.
Interest-bearing deposits are recorded at cost, which approximates fair
value, and are deposited with BBH&Co.
INCOME TAXES:
1818 Oil calculates current and deferred income taxes on separate company
bases. Deferred income taxes are recognized for the future tax
consequences of differences between the tax bases of assets and
liabilities and their financial reporting amounts at year end.
As of December 31, 1997, 1996 and 1995, 1818 Oil had net operating loss
carryforwards available to offset future taxable income. Valuation
allowances have been provided for the entire amount of the net deferred
tax asset resulting from these carryforwards.
3. LONG-TERM DEBT:
Pursuant to the subscription agreement at the time of organization,
capital contributions from the Fund to 1818 Oil are apportioned between
long-term debt and paid in capital. The percentages set forth in the
agreement are: 75 percent long-term debt and 25 percent capital
contribution. Interest accrues on the long-term debt at a rate of 14
percent per annum. There have been no payments of interest to the Fund.
There are no contractual repayment terms in place.
4. RELATED PARTIES:
The Fund has entered into a guaranty and covenant agreement with HOEC
under which the Fund is contingently liable to HOEC in the amount of
undrawn cash commitments of 1818 Oil of $13,606,595 and $18,956,700, as of
December 31, 1997 and 1996, respectively.
9
As compensation for its services, the Fund pays BBH&Co. quarterly
management fees, in arrears, in an amount equal to one percent per annum
of the average weekly amount of invested funds for each fiscal quarter. It
is the policy of the Fund to bear 1818 Oil's allocable share of these
costs on behalf of 1818 Oil.
5. INCOME TAXES:
There were no current or deferred tax provisions for the years ended
December 31, 1997, 1996 and the period from September 13, 1995
(commencement of operations) through December 31, 1995.
At December 31, 1997 and 1996, the net deferred tax assets was comprised
of:
1996 1997
-------------- -------------
Deferred tax assets:
Unrealized depreciation in the
value of Investment in HOEC $5,106,592 $ --
Net operating loss carry forwards 982,509 381,942
---------- ---------
Total deferred tax asset 6,089,101 381,942
---------- ---------
Valuation allowance (6,089,101) (381,942)
----------- ---------
Net deferred tax asset $ -- $ --
========== =========
1818 Oil will only recognize a net deferred tax asset when, based on
available evidence, realization is more likely than not. At December 31,
1997 and 1996, 1818 Oil has recorded a full valuation allowance against
its deferred tax assets. Upon examination by the relevant tax authorities,
issues could arise that may affect the amount of the net operating loss
carryforwards.
A reconciliation of the difference between the statutory federal income
tax rate and the effective income tax rate follows for the years ENDED
December 31, 1997 and 1996 and the period from September 13, 1995
(commencement of operations) through December 31, 1995 consisted of the
following:
1997 1996 1995
------------ ------------ ------------
Statutory income tax rate 35.00% 34.00% 34.00%
Net operating loss (35.00)% (34.00)% (34.00)%
-------- -------- --------
Effective income tax rate -- -- --
========= ========= =========
1818 Oil is subject to federal taxes only, with no allocations made to
state and local taxes.
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6. SIGNIFICANT RISKS AND UNCERTAINTIES:
All of HOEC's operations are conducted outside of the United States. HOEC
attempts to conduct its affairs so as to protect against risks that may be
inherent in doing business in international locations.
Estimates of oil and gas values as made in the financial statements
require extensive judgments and are generally less precise than other
estimates made in connection with financial disclosures. Assigning
monetary values to such estimates does not reduce the subjectivity and
changing nature of such estimates of value made by other companies. 1818
Oil considers its estimates to be reasonable; however, due to inherent
uncertainties and the limited nature of data, estimates are imprecise and
subject to change over time as additional information becomes available.
7. SUBSEQUENT EVENT
On February 18, 1998, 1818 Oil entered into a Stock Acquisition Agreement
and Plan of Reorganization (the "Agreement") with VAALCO Energy, Inc.
("VAALCO") which provides that 1818 Fund II, L.P. transfer to VAALCO 100
percent of the common stock outstanding of 1818 Oil Corp., in return for
10,000 shares of preferred stock, $25.00 par value, of VAALCO. The
Agreement also provides that simultaneously with the closing of the
Agreement, 1818 Fund II, L.P. agrees to acquire additional common shares
of VAALCO, $0.10 par value, in an aggregate amount of $5,000,000.
Following these simultaneous transactions, 1818 Fund II, L.P. will own
common stock and preferred stock of VAALCO which will in the aggregate
represent a majority of the outstanding voting power of VAALCO on an as
converted basis. Immediately prior to the closing of the transaction, 1818
Oil will deposit cash in the amount of its remaining unfunded first and
second level capital commitments ($13,606,595 as of December 31, 1997)
with a commercial bank. Consummation of the transaction is subject to a
number of material conditions, including the closing of the sale to
unrelated investors of at least $5,000,000 of common shares of VAALCO in a
separate private placement transaction. The transaction is expected to
close in March 1998.
A capital call of $1,018,450 was made by HOEC on 1818 Oil on March 23,
1998. 1818 Oil will remit payment in April of 1998.
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