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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1997 Commission File No. 0-9154
CHEYENNE RESOURCES, INC.
State of Incorporation I.R.S. Employer Identification No.
Wyoming 83-0211506
1111 E. Lincolnway, Suite 215
Cheyenne, WY 82001
Telephone: 307.632.6437
Securities Registered Pursuant to Section 12 (b) of this Act:
Title of Each Class Name of Each Exchange on Which Registered
None None
Securities Registered Pursuant to Section 12(g) of this Act:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, NASDQ (BULLETIN BOARD)
Par value $0.01 Per Share
Indicate by check mark whether the Registrant (1) has filed all annual,
quarterly and other reports required to be filed with the Commission, and (2)
has been subject to the filing requirements for at least the past ninety days.
Yes______ No___X___
The Aggregate market value of the voting stock held by non-afficiates of the
registrant is $106,844.
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date:
OUTSTANDING AT DECEMBER 31, 1997: 23,136,289
CHEYENNE RESOURCES, INC.
1997 FORM 10-K ANNUAL REPORT
Table of Contents
Page
PART I
Item 1. Business 1-3
Item 2. Properties 4-6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6
PART II
Item 5. Market for the Registrant's Common Stock and Related Security
Holder Matters 7
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9-10
Item 8. Financial Statements and Supplementary Data 10
Item 9. Disagreement on Accounting and Financial Disclosure 10
PART III
Item 10. Directors and Executive Officers of the Registrant
11-12
Item 11. Management Remuneration and Transactions 13-14
Item 12. Security Ownership of Certain Beneficial Owners and Management 15
Item 13. Certain Relationships and Related Transactions 16
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
17
Signature Page 18
PART 1
Item 1. Business
General Description of Business
(a ) Cheyenne Resources, Inc. ("Cheyenne" or "the Company"), acquires oil,
gas, and other
mineral properties for exploring, producing, and selling oil and gas and other
mineral substances.
The Company does not engage in refining or retail marketing operations; rather
its activities to
date have been restricted to acquiring and disposing of mineral properties, to
exploring for oil
and gas and to producing and selling oil and gas from its wells.
The Company conducts exploration for its own account, and through joint
ventures in
which it participates. The Company's own exploration has been conducted
principally in
connection with developing its producing properties primarily with other oil
companies in
Wyoming, Colorado and Oklahoma. The Company is attempting to expand its
production and
operating base in the United States through additional exploration and
development as well as
property acquisitions.
Principal activities of the Company in the past involved buying leases,
filing on federal
and state open land leases as well as acquiring and trading of oil, gas, and
other mineral
properties, primarily in the Rocky Mountain area and Oklahoma.
Financial Information about Industry Segments
The Company was incorporated under the laws of the State of Wyoming on
November 17, 1970. The Company operates principally in one industry segment,
the exploration for and sale of oil and gas.
The Company's oil and gas activities, include the acquisition of whole or
partial interests
in oil and gas leases and the farming out or resale of all or part of its
interests in these leases. In
connection with farmouts and resales, the Company attempts to retain an
overriding royalty or a
working or carried interest. The Company's activities also include exploratory
and development
drilling and exchanging, joint venturing and otherwise dealing in oil and gas
property interest,
primarily acquired through leasing.
The Company maintains offices at 1111 E. Lincolnway, Suite 215 Cheyenne,
WY 82001.
The offices, consisting of approximately 500 square feet, are subject to a
lease which
commenced March 1, 1998 on a year to year basis.
The Company presently employs its President who devotes substantially all
of his time to
the affairs of the Company. The Company's telephone number is 307.632.6437.
-1-
Employees
The Company employs one part-time employee. In addition, Cheyenne
Resources, Inc.,
retains on an as needed basis consultants in the field of petroleum
engineering, geology, land
acquisitions, administration and field operations.
Competition
The Company competes with many other energy orientated companies, both
large and
small, operating in the states in which the Company does business. Some of the
competitors are
major oil and gas, coal, uranium and mineral companies with substantial
financial reserves and
earnings records. Others are smaller independents with varying degrees of
stability. Some not
only produce oil and gas but refine and market petroleum products. Some
produce and market
coal, uranium and other minerals.
Primarily, the Company competes with these companies in the area of
locating and
reducing to ownership or control oil and gas and other minerals in commercial
quantities.
The Company may have a competitive disadvantage with many of these
companies in
that they have greater sources of capital, technical and management talent,
research facilities and
sources of information.
The business of the Company is seasonal only to the extent that weather
conditions,particularly snow and cold, impede the ability of the Company or
others who may be developing
properties in which it has an interest to conduct exploratory activities or
drilling.
Customers
During the years ended December 31, 1997, 1996, and 1995, the Company's
revenuesfrom oil and gas sales were 42%, 96% and 100%, respectively of the
Company's total revenue.
The Company's major purchaser of its oil and gas production is Western
Production Company.
For further description of the Company's major customers, see Note 7 of the
Notes to Financial
Statements.
Regulation
All the jurisdictions in which the Company owns producing oil and gas
properties have
statutory provisions regulating the production and sale of crude oil or
natural gas. These
regulations often require permits for the drilling of wells and also cover the
spacing of wells, the
prevention of waste of oil and gas resources, the rate of production and
environmental and other
matters.
-2-
The development and operation of oil and gas and other mineral properties
are subject to
numerous and extensive regulations by federal and state agencies dealing with,
among other
subjects, protection of the environment. Compliance with applicable
environmental laws
regarding environmental quality, including the possibility that the Company
may be required to
file environmental impact statements, which could have a material adverse
effect on its
operations by involving substantial addition expense. This may place a company
with limited
capital and resources, such as the Company, at a competitive disadvantage.
The Company does not anticipate material capital expenditures for
environmental control
facilities for its current fiscal year.
-3-
Item 2. Properties
General
As of December 31, 1997, the Company owns various interests in oil and
gas producing
leases located in Oklahoma. Also, it owns various producing overriding
royalties on properties
located in Wyoming and Colorado. Additionally, the Company has non-producing
leases and
overriding royalties on properties located in Wyoming. The presence of
underlying oil and gas
reserves cannot be determined on the Company's non-producing leases and non
producing overriding royalties until exploratory wells are drilled on such
prospects and, even if oil or gas reserves are discovered, there can be no
assurance such reserves will be of commercial quantities.
Most fee leases are for a term of three to ten years; are burdened by a
landowner's royalty of 12.5% to 18.75% and, in some instances, an overriding
royalty of up to 6.25% and provide for bonus payments to the landowner upon
transfer of the lease interest and annual rentals of $.50 to $1.00 per acre.
Fee leases sometimes provide that the lessee drill or arrange for the
drilling of an exploratory well on or before a certain date. The granting
of leases on land owned by the federal government is regulated by the United
States Department of the Interior, Bureau of Land Management (the "BLM").
Generally, BLM leases have a term often years, are burdened by a 12.5%
royalty, require no bonus payments and, at present rates, provide for annual
rentals of $1.00 per acre. Leases on federal land overlying known geological
structures ("KGS") are from time to time made available for competitive bidding
by the United States Geological Survey (the "USGS") and are more costly to
acquire and carry. At present, the Company does not have an interest in any
KGS land. In most states, the terms, acquisition procedures, and other
regulations with respect to leases on state-owned land are analogous to those
with respect to land owned by the federal government.
If a fee, federal or state lease is purchased from a third party, it is
customary for the third
party to attach an overriding royalty of, generally, five percent of 8/8ths,
as well as to charge the purchaser for rentals previously paid and to charge a
bonus payment.
For the following discussion, gross well or acre is a well or acre in
which a working
interest is owned. The number of gross wells is the total number of wells in
which a working
interest is owned.
For the following discussion, a net well or acre is deemed to exist when
the sum of
fractional ownership working interests in gross wells or acres equals one. The
number of net
wells or acres is the sum of the fractional working interests owned in gross
wells or acres
expressed as whole numbers and fractions thereof.
-4-
Details of the Company's properties are as follows:
Sales of Producing Oil and Gas Properties
The Company has acquired oil and gas leases, mineral interests, working
interests and
overriding royalty interests in oil and gas properties in the states of
Oklahoma and Wyoming.
These properties are held for resale to others, for exploration and
development (primarily on a
joint venture) or farmout. The Company has received the following proceeds
from the sale of oil
and gas property interests:
Year Ending Proceeds
December 31 Received
1993 $ -0-
1994 -0-
1995 -0-
1996 3,300
1997 99,000
Net Productive and Dry Wells Drilled
The Company has participated in drilling net productive and net dry wells
as follows:
Net productive wells Net dry wells
Development Exploratory Development Exploratory
Year ended
December 31,
1997 -0- -0- -0- -0-
Year ended
December 31,
1996 -0- -0- -0- -0-
The Company's net revenues from the production of proved developed oil
and gas reserves are as follows:
Year ended Year ended Year ended Year ended
Year ended
December 31, December 31, December 31, December 31,
December 31,
1993 1994 1995
1 996 1997
$135,500 $103,762 $87,832 $84,508 $73,149
At December 31, 1997, the Company owns only overriding royalty or mineral
interests. The Company's reserves are not considered a material amount and has
not obtained reserve estimates on these interests.
-5-
Developed Acreage
As of December 31, 1997, the Company's total gross and net developed oil
and gas acres
(i.e., areas spaced or assignable to productive wells) attributable to its
lease and overriding
royalty interests were as follows:
Developed Acres
Location Gross Net
Lease interests
Oklahoma 730 189
Overriding royalty interests
Wyoming 16,348 1,192
Colorado 840 67
Total 17,918 1,448
Undeveloped Acreage
As of December 31, 1997, the Company's total gross and net undeveloped
oil and gas
acres (i.e., areas spaced or assignable to productive wells) attributable to
its lease and overriding
royalty interests were as follows:
Undeveloped Acres
Location Gross Net
Overriding royalty interests
Wyoming 6,830 274
Item 3. Proceedings
There are no known legal proceedings which the Company has been named as
a party to
at December 31, 1997.
Item 4. Submission of Matters to a Vote of Security Holders
In accordance with Wyoming statutes at a 1997 Board of Directors meeting
"the Requirement to hold an Annual Meeting of Shareholders' was waived, due to
the Company's severe cash problems.
The Board of Directors consented at that time to continue serving on the
Board until the next Annual Meeting of Shareholders. The Company anticipates a
meeting will be held in 1999.
There have been no matters submitted to shareholders during the year
ended December 31, 1997.
-6-
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters
The Company no longer meets the net asset or equity requirements of NASDQ
and is traded on the "Bulletin Board" and will be listed there until the
Company can requalify on the Over-The-Counter Market. The range of low and high
bid and ask quotations for each quarterly period during 1997 as reported by the
"Bulletin Board" was as follows:
Bid Prices
Fiscal Quarters Low High
January - March 1997 -0- -0-
April - June 1997 -0- -0-
July - September 1997 -0- -0-
October - December 1997 -0- -0-
Ask Prices
Fiscal Quarters Low High
January - March 1997 -0- -0-
April - June 1997 -0- -0-
July - September 1997 -0- -0-
October - December 1997 -0- -0-
Stock was sold by contacting a broker and submitting a price that a buyer
was willing to
pay.
As of December 31, 1997, there were approximately 2,975 record holders of
the Company's $0.01 par value common stock. Shares held in street name appear in
the above tabulation as one record holder for each broker holding street name
shares.
The Company has not paid any dividends and does not intend to do so for
the foreseeable
future.
-7-
Item 6. Selected Financial Data
CHEYENNE RESOURCES, INC.
Year Ended December 31, (a)
1997 1996 1995 1994 1993
Revenue $ 172,149 $ 81,808 $ 87,832 103,762 135,500
Income (loss ) from
continuing operations
before extraordinary
credit (313,827) (231,292) (82,726) (207,610) (58,921)
Extraordinary
credit (b) 44,654 0 0 0 0
Net (loss) (267,173) (231,292) (82,726) (207,610) (58,921)
Per share: (c)
Income (loss) from
continuing operations
before extraordinary
credit (.01) (.01) 0 (.01) 0
Net (loss) (.01) (.01) 0 (.01) 0
Cash dividends paid 0 0 0 0 0
Total assets 235,321 512,833 680,970 702,646 872,353
Long-term debt 0 30,830 30,830 30,830 30,830
(a) All information is unaudited.
(b) The extraordinary credit for 1997 represents the settlement of a note
payable at less than
the recorded amount.
(c) Earnings per share data has been computed n the weighted-average number
of common
shares and common equivalent shares outstanding during each year. The
common stock
equivalent share consist of outstanding common stock options and warrants.
-8-
Item 7. Managements Discussion and Analysis of financial Condition and
Results of Operations
During the third quarter of 1997, the Company sold its major oil and gas
producing property for $84,000 and a small mineral interest for $15,000. The
funds were used to purchase a mineral interest in Texas for $50,000. The Company
is attempting to find a merger partner or acquire producing properties for
stock. Oil and gas revenues will be down significantly in 1998 due to the
sale of the Company's major oil and gas property and lower than anticipated
production levels from the Texas mineral interest and the lower oil and gas
prices in 1998.
The working capital deficit of $904,925 is the result of old accounts
payable to vendor
and accrued salary and interest due to officers for services. Without better
oil prices and
increased production this deficit will continue into 1998.
THE FOLLOWING IS A TABULAR RECAP OF THE CHANGES IN ALL REVENUE
AND EXPENSE ITEMS COMPARING 1997 TO 1996.
Increase
Revenue (Decrease) % Change
Sale of producing lease interests $ 95,700 290.00%
Oil royalty and oil and gas working
interest income (11,359) (13.44%)
Operating Expenses
Cost of producing properties sold 210,167 144.25%
Production costs (27,529) (41.72%)
Depletion expense (10,467) (82.57%)
Administrative expense 302 .72%
Cost of noncurrent marketable security written off 4,922 (100.00%)
Financial expense (10,519) (19.96%)
The net loss for 1997 was $35,881 higher than the loss for 1996.
-9-
REVENUES:
Sales of producing properties are up $95,700 in 1997 due to the sale of
the Company's
major oil and gas property. Oil and gas revenues in 1997 are down $11,359 from
1996 due to
lower production levels and prices in 1997 and the sale of producing
properties in the third
quarter of 1997.
EXPENSES:
The cost of properties sold in 1997 were $210,167 higher than the
properties sold in
1996. The production costs in 1997 were lower due to the sale of several high
production cost
properties in 1996 and the sale of properties in the third quarter of 1997.
Depletion expense was
lower due to lower production in 1997 as compared to 1996. Administrative
costs remained level
as there were no changes in administrative personnel or unusual administrative
costs incurred in
1997 as compared to 1996. Interest expense in 1997 was $10,519 lower due to
the settlement of a
note payable to a shareholder in 1997 and lower interest rates on notes to
officers in 1997.
NET LOSS:
The net loss in 1997 is $35,881 higher due to the loss on properties sold
in 1997 being
$114,467 higher than the loss on properties sold in 1996. The loss is also
reduced by the
extraordinary item of debt forgiven of $46,654 in 1997.
Item 8. Financial Statements and Supplementary Data
The response to this item is submitted as a separate section of this
report.
Item 9. Disagreements of Accounting and Financial Disclosure
None.
-10-
PART III
Item 10. Directors and Executive Officers of the Registrant
The executive officers and directors of the Company are:
Name Position Age
Robert R. Spatz President, Assistant-Treasurer and Director 73
Earl P. King Vice-President Finance, Secretary and Director
46
Warren J. Hickman Vice-President and Director 68
Leonard E. Gill Treasurer and Director 74
Don Goddard Director 42
Randall L. Reichert Director 50
Doris J. Spatz Assistant-Secretary 73
Robert R. Spatz has been the President and a director of the Company
since 1970,
devoting substantially full time to the affairs of the Company. From April
1976 until September
1, 1979, he was employed approximately 75% of his time by Discovery Oil, Ltd.
as office
manager and landman in addition to his position with the Company.
Earl P. King in 1973 received a Bachelor of Science Degree in accounting
from Colorado
State University, Fort Collins, Colorado. From 1973 until May 1981, Mr. King
was employed by
the public accounting firm of McGladrey Hendrickson & Co. Since 1975, Mr. King
has been a
certified public accountant. Mr. King resigned as an officer and director of
the Company on
December 11, 1997.
Warren J. Hickman is in the private practice of dentistry in Cheyenne,
Wyoming. He has
been the Vice-President and a director of the Company since its inception in
1970. Dr. Hickman
attended the University of Nebraska and obtained a degree in biological
sciences. He received a
D.D.S. from the University of Nebraska College of Dentistry. Dr. Hickman will
devote such time
to the affairs of the Company as may be necessary to attend Board of
Directors' meetings.
Leonard E. Gill is the owner and operator of Deluxe Cleaners and Tailors
in Cheyenne,
Wyoming. He has been the Treasurer and a director of the Company since its
inception in 1970.
Mr. Gill will devote such time to the affairs of the Company as may be
necessary to attend Board
of Directors' meetings.
-11-
Don Goddard received an associates degree from Aims Community College in
Liberal
Arts, and Bachelors of Science from Colorado State University in Social
Science and Business.
1983-1986 Became a Registered Representative in the securities industry with
Wallstreet West
Inc. 1986-1997 worked for Gilbert Marshall Inc. as a Registered Representative
in the securities
industry. 1986-1988 worked with Vetline Inc. on taking the company public then
became head of
the wholesale division and public relations. In the past and present Mr.
Goddard has served on
the board of directors for companies both private and public. Presently Mr.
Goddard is a
consultant on estate and business planning.
Randall L. Reichert has received the following degrees: A.S.-Hazardous
Materials
Management from Front Range Community College, Denver, Co., B.S.-Geology,
University of
North Dakota, Grand Forks, ND, M.S.-Geology, Western Michigan University,
Kalamazoo, MI,
M.S.-Rangeland Ecosystem Science, Colorado State University, Fort Collins, CO.
Mr. Reichert
is presently serving as range conservation specialist for the Rangeland
Ecosystem Science Dept,
Colorado State University, Fort Collins, CO. Mr. Reichert also has previous
experience as
program coordinator, graduate teaching assistant, environmental geologist,
well development
coordinator, credentials administrator, sales and marketing manager, senior
petroleum geologist,
graduate teaching/research assistant and assistant supervisor and field
geologist.
Doris J. Spatz wife of Robert R. Spatz, has been a housewife for the past
five years.
The directors of the Company are elected to serve until the next annual
shareholders'
meeting or until their respective successors are elected and qualified.
Officers of the Company
hold office until the meeting of the board of Directors after the next annual
shareholders' meeting
or until removal by the Board of directors.
There are no arrangements or understandings between any officer or
director and any
other person pursuant to which the officer or director was selected or elected.
There have been no events under any bankruptcy act, no criminal
proceedings and no
judgements or injunctions material to the evaluation of the ability and
integrity of any director or
executive officer during the past five years.
The Company knows of no contractual arrangements which may at a
subsequent date
result in a change in control of the Company.
-12-
Item 11. Management Remuneration and Transactions
(A) and (b)
Remuneration
The following information is set forth with respect to all remuneration
paid by the
Company during the year ended December 31, 1997 to the Company's five most
highly paid
executive officers or directors whose total remuneration exceeded $50,000, and
to all directors
and officers as a group:
Securities
or Property, Aggregate of
Name of Insurance contingent
individual Salaries, fees benefits or forms of
or number of directors' fees reimbursement remuneration
persons in Capacities commissions, personal and proposed
group in which served and bonuses benefits remuneration
Robert R. Spatz President $12,000 $3,848 (1)
Assistant-
Treasurer and
Director
Earl P. King Vice- $ 6,000 $2,565 (2)
President of
Finance,
Secretary
And Director
Warren J. Hickman Vice- $1,200 0 -0-
President and
Director
Leonard E. Gill Treasurer and $1,200 0 -0-
Director
Doris J. Spatz Assistant- 0 0 -0-
Secretary
All directors and
officers as a group
(5 Persons) (3) 20,400 $6,413 (1) and (2)
-13-
(1) None of the current directors of the Company will devote their full
time to the
management of the Company, but Mr. Spatz will devote substantially full time
to the Company.
Mr. Spatz is presently being paid a salary of $12,000 for the calendar year
1997.
(2) The Company employs its Vice-President, in charge of Finance, Earl P.
King at a
salary of $600. per month on a part time basis.
(3) All of the persons named above are included in the group.
The Company expects to engage the services of geological consultants and
land brokers
on a fee plus expenses (travel, lodging and meals) basis. The Company intends
to pay its non-
salaried officers and directors for attending directors' meetings at the rate
of $100 per person per
month.
In the event any of the officers or directors should originate a prospect
which the
Company determines to purchase, the Company will grant an overriding royalty
to the originator
of the prospect in accordance with royalties granted by the industry in the
prospect area, not to
exceed 6.25%, or a finder's fee. In addition, a finder's fee will be paid to
any person (including
officers and directors) originating a sale of a lease owned by the Company.
Any such royalties or
finder's fee will be determined by the Board of Directors of the Company.
Incentive and Compensation Plans and Arrangements
See Options, Warrants and Rights hereinafter.
Stock purchase Plans; Profit Sharing and Thrift Plans
Presently the Company has no stock purchase plans, profit-sharing aor
thrift plans.
Options, Warrants or Rights
See Note 8 of the Notes to Financial Statements for a discussion of the
Company's
Incentive Stock Option Plan.
-14-
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of December 31, 1997, the information
with respect to
Common Stock ownership of each person known by the Company to own beneficially
more than
5% of the shares of the Company's Common Stock, $0.01 par value, and of all
Officers and
Directors as a group:
Amount and Nature
of Beneficial
Name and Address Interest Percent of Class
Robert R. Spatz 1,066,080 (1) 4.6%
2846 Kelly Drive Direct and
Cheyenne, Wyoming 82001 Beneficial
Robert J. Connaghan 2,062,495 (2) 8.9%
2803 Carey Avenue Direct and
Cheyenne, Wyoming 82001 Beneficial
Berge Exploration, Inc. 630,827 (3) 2.7%
8774 Yates Dr., Ste. 100 Direct and
Westminister, CO 80030 Beneficial
Berge Enterprises, Inc. 904,500 (3) 3.9%
5862 Owens St. Direct and
Arvada, CO 80004 Beneficial
Whiting Enterprises, Inc. 914,500 (3) 3.9%
5855 Parfeit St. Direct and
Arvada, CO 80004 Beneficial
Officers and Directors 1,767,530 7.4%
As a Group (Five Direct and
Persons) Beneficial
(1) Does not include 89,600 shares owned of record by Mr. Spatz's adult
children, beneficial
ownership of which is disclaimed by Mr. Spatz, includes 439,700 shares owned
by Doris J.
Spatz, wife of Mr. Spatz and Assistant-Secretary of the Company; but does not
include 400,000
shares optioned to Robert R. Spatz pursuant to his stock option granted to in
1979 and 1982.
(2) Includes 1,541,650 shares owned of record by Connaghan Ltd. of which Mr.
Connaghan is
the general partner.
(3) Due to beneficial ownership of these entities by two shareholders, all
shares are aggregated
together.
-15-
Item 13. Certain Relationships and Related Transactions.
Transactions with Management
During the year ended December 31, 1997, there were no material
transactions between
the Company and any of the Officers and Directors of the Company except for
the payments of
salaries directors' fees, expense reimbursement, and other renumeration
described previously
within this Form 10-K.
Indebtedness of Management
Presently, no officers or directors of the Company are indebted to the
Company.
Transactions with Pension Similar Plans
Presently, the Company has no pension or similar plans.
-16-
PART IV
Item 14. Exhibits, Financial Statement Schedules and Report on Form 8-K
(a) (1), (2) and (3). The response to this portion of Item 14 is
submitted as a separate
section of this report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the Company for events occurring
during the
fourth quarter of the year ended December 31, 1997.
(c) See Item 14 (a) above
(d) The response to this portion of Item 14 is submitted as a separate
section of this
report.
-17-
SIGNATURE
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.
CHEYENNE RESOURCES, INC.
(Registrant)
Date: December 29, 1998 By: _____________________________
Robert R. Spatz
President, Assistant-Treasurer
And Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on
the dates indicated.
___________________________ President, Assistant- December
29, 1998
Robert R. Spatz Treasurer and Director
___________________________ Vice-President and Director
December 29, 1998
Warren J. Hickman
___________________________ Treasurer and Director December
29, 1998
Leonard E. Gill
Director
December 29, 1998
Don Goddard
Director
December 29, 1998
Randall L. Reichert
-18-
CHEYENNE RESOURCES, INC.
FORM 10-K
Items 8, 14(a) (1) and (2)
INDEX OF FINANCIAL STATEMENTS AND SCHEDULES
The following financial statements of the registrant required to be included
in Item 8 listed
below:
Pages
The following financial statements are unaudited 20
FINANCIAL STATEMENTS:
Balance sheets 21 & 22
Statements of operations 23
Statements of stockholders' equity 24
Statements of cash flows 25 & 26
Notes to financial statements 27 - 30
UNAUDITED SUPPLEMENTARY INFORMATION:
The following financial statements are unaudited 32
Capitalized costs relating to oil and gas producing activities
33
Costs incurred in oil and gas property acquisition, exploration,
And development activities 34
Results of operations for producing activities 35
Reserve quantity information 36
FINANCIAL STATEMENT SCHEDULES:
The following financial statements are unaudited 38
Schedule V - Property and equipment 39 & 40
Schedule VI - Accumulated depletion of property and
accumulated Depreciation of equipment 41
Schedule X - Supplementary income statement information 42
Schedules other than those mentioned above are omitted since they are either
not required, are
not applicable, or the required information is shown in the financial
statement or related notes.
-19-
The following financial statements are unaudited
-20-
CHEYENNE RESOURCES, INC.
Balance Sheets (Unaudited)
December 31, 1997 and 1996
Assets
1997 1996
Current assets, cash $ 45,998 $
10,516
Investments, noncurrent marketable securities (Note 2) 0
4,922
Oil and gas properties, at cost, using the successful
efforts method of accounting (Note 5):
Producing 460,196 1,213,705
Nonproducing 31,439
31,439
491,635 1,245,144
Less accumulated depletion 302,312 844,454
189,323 400,690
Equipment, at cost (Note 6)
Office furniture and equipment 33,394 33,394
Oil production equipment 0
413,237
33,394 446,631
Less accumulated depreciation 33,394
349,926
0 96,705
$235,321 $ 512,833
-21-
See notes to unaudited financial statements.
CHEYENNE RESOURCES, INC.
Balance Sheets (Unaudited) (continued)
December 31, 1997 and 1996
Liabilities and Stockholders' Equity
1997 1996
Current liabilities:
Notes payabale, directors (Note 3) $ 24,300
$ 24,300
Notes payable to officers (Note 5) 547,378
529,378
Accounts payable and accrued expenses 379,245
376,754
Total current liabilities 950,923
930,432
Long-term debt (Note 4) 0
30,830
Commitments and contingencies (Note 6)
Stockholders' equity (Note 8):
Capital stock, common, par value $.01
authorized 50,000,000 shares;
Issued and outstanding 1997: 24,276,289;
1996: 24,276,289 shares 242,763
242,763
Additional paid-in capital 3,179,613
3,179,613
Deficit (4,135,478) (3,868,305)
(713,102) (445,929)
Less cost of 500,000 shares of treasury stock (2,500)
(2,500)
(715,602) (448,429)
$ 235,321 $ 512,833
See notes to unaudited financial statements.
-22-
CHEYENNE RESOURCES, INC.
Statements of Operations (Unaudited)
Years ended December 31, 1997, 1996 and 1995
1997 1996 1995
Revenue:
Sale of producing lease interests $ 99,000 $
3,300 $0
Oil royalty and oil and gas working
interest income (Note 7) 73,149 84,508
87,832
172,149 87,808
87,832
Operating costs and expenses:
Cost of producing lease
interests sold 355,863 145.696
0
Production costs 38,452 65,981 75,000
Depletion expense 2,209 12,676 13,175
Cost of noncurrent marketable securities
written off (Note 2) 4,922 0 0
Administrative expenses 42,340 42,038
37,526
443,786 266,391 125,701
Operating (loss) (271,637) (178,583) (37,869)
Financial income (expense):
Interest income 860 181 84
Interest expense (43,050) (52,890) (44,941)
42,190 (52,709) (44,857)
Loss before extraordinary item (313,827) (231,292)
(82,726)
Extraordinary item, settlement of
note payable at less than recorded
amount (Note 4) 46,654
0 0
Net (loss) $(267,173) $(231,292) $(82,726)
Weighted-average number of
common shares and common
equivalent shares outstanding 23,776,289 23,776,289
23,776,289
(Loss) per common and common
equivalent share:
(Loss ) before extraordinary item $(.01) $(.01) $0
Extraordinary item 0 0 0
Net (Loss) $(.01) $(.01) $0
See notes to financial statements.
-23-
CHEYENNE RESOURCES, INC.
Statements of Stockholders' Equity (Unaudited)
Years ended December 31, 1997, 1996 and 1995
Additional Retained
Capital Paid-In Earnings Treasury
Stock Capital Deficit Stock
Balance, December 31, 1994 $242,763 $3,179,613
$(3,554,287) $(2,500)
Net (loss) 0 0
(82,726) 0
Balance, December 31, 1995 242,763 3,179,613 (3,637,013)
(2,500)
Net (loss) 0 0
(231,292) 0
Balance, December 31, 1996 242,763 3,179,613 (3,868,305)
(2,500)
Net (loss) 0 0
(267,173) 0
Balance, December 31, 1997 $242,763 $3,179,613
$(4,135,478) $(2,500)
See notes to unaudited financial statements.
-24-
CHEYENNE RESOURCES, INC.
STATEMENTS OF CASH FLOWS (Unaudited)
Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from oil and gas operations 73,149 84,508
87,832
Cash paid to suppliers and employees (64,954) (74,036)
(75,859)
Interest income 860 182 84
Interest paid (12,573) (11,043) (7,383)
Net cash provided by (used in) operating (3,518) (389)
4,674
activities
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of producing properties 99,000 3,300
0
Purchase of producing properties (50,000) 0
0
Net cash provided by investing activities 49,000 3,300
0
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt (10,000) 0
0
Net cash (used in) financing activities (10,000)
0 0
Net increase in cash and cash equivalents 35,482 2,911
4,674
Cash and cash equivalents
Beginning 10,516 7,605 2,931
Ending 45,998 10,516 7,605
See notes to unaudited financial statements
-25-
CHEYENNE RESOURCES, INC.
STATEMENT OF CASH FLOWS (Unaudited)
Years Ended December 31, 1997, 1996 and 1995
(continued)
1997 1996 1995
RECONCILIATION OF NET (LOSS)
TO NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES
Net (loss) before extraordinary item $(313,827)
$(231,292) $(82,726)
Extraordinary item 46,654 0 0
Adjustments to reconcile net (loss) to
net cash provided by (used in) operating
activities:
Depreciation 0 12,676 13,175
Depletion 2,209 12,676 13,175
Basis of producing properties sold 212,306 142,396
0
Basis of noncurrent marketable securities 4,922 0
0
Change in working capital components:
Increase (decrease) in notes payable 18,000 18,000
18,000
Increase (decrease in accounts payable
and accrued expenses 26,218 45,155
43,050
Net cash provided by (used in)
operating activities $ 3,518 $ (389)
$ 4,674
See notes to financial statements.
-26-
CHEYENNE RESOURCES, INC.
Notes to Unaudited Financial Statements
1. Significant Accounting Policies
The Company operates principally in one industry; the exploration for,
development and
production of, and investment in, oil and gas properties. These
operations involve active
participation in drilling for oil and gas, sale of subsequent production
and buying and
selling the right to explore for and produce the resources from
landowners' property.
Allowances for collection losses:
The Company follows the policy of providing an allowance for collection
losses when, in
the opinion of management, there is an uncertainty as to the
collectibility of any of the
accounts or notes receivable.
Exploration and development costs:
The Company uses the successful efforts method of accounting whereby
development
costs, whether productive or nonproductive, are capitalized and amortized
using the unit-
of-production method. All geological and geophysical costs are expensed
as incurred and
all exploratory drilling costs are initially capitalized and costs of
unsuccessful wells are
charged to expense when they are determined to be nonproductive.
Methods of depletion:
Depletion is computed by the unit-of-production method on producing
properties. Such
depletion is based on geological estimates of proven primary reserves.
Equipment accounting policies:
Depreciation is computed by the straight-line method on the cost of the
office furniture
and equipment based on their estimated useful lives ranging from 3 to 5
years.
Depreciation on the oil production equipment is computed by the unit-of-
production
method.
Maintenance and repair expenditures are charged to operations, and
renewals and
betterments are capitalized. Items of equipment which are sold, retired
or otherwise
disposed of are removed from the asset and accumulated depreciation
accounts and any
resulting gains or losses are reflected in operations.
Cash and Cash Equivalents:
Cash and cash equivalents consist of cash in banks and cash investments
in immediately
available interest bearing accounts.
-27-
CHEYENNE RESOURCES, INC.
Notes to Unaudited Financial Statements
Pervasiveness of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting
principles requires management to make estimates and assumptions that
effect the
reported amounts of assets and liabilities, and related revenues and
expenses, and
disclosure of gain and loss contingencies at the date of the financial
statements. Actual
results could differ from those estimates.
Earnings per share:
The earnings per share data (to the nearest cent) has been computed on
the basis of the
weighted-average number of common shares and common equivalent shares
outstanding
during each period.
2. Noncurrent Marketable Securities
Noncurrent securities with a carrying value of $4,922 were written off at
December 31,
1996.
3. Notes Payable Directors
At December 31, 1997 and 1996, the Company had notes payable to two of
its directors
for $24,300. This loan has been outstanding since February, 1987.
4. Long-term Debt
The following is a summary of the Company's long-term borrowings at
December 31,
1997 and 1996:
Interest
Due to Rate Maturity 1997 1996
Individual 10.5% Demand -0- $30,350
(a) Note payable to a shareholder and former director of the Company. The
note is due on
demand and is unsecured. The note and accrued interest were settled for
$10,000 in 1997,
resulting in a gain of $46,654.
-28-
CHEYENNE RESOURCES, INC.
Notes to Unaudited Financial Statements
5. Notes Payable Officers
At December 31, 1997, the Company has a note payable of $547,378 to its
two officers
that are on salary which represents back wages and expenses due them. The
note bears
interest at 8%. The note is due on demand and is collateralized by
producing oil and gas
properties with a carrying value of $157,884 at December 31, 1997.
6. Income Tax Matters
At December 31, 1997, the Company has approximately $1,900,000 in net
operating loss
carryforwards available to offset future taxable income. The
carryforwards expire as
follows:
December 31, 1998 355,000
December 31, 1999 232,000
December 31, 2000 406,000
December 31, 2001 360,000
December 31, 2002 547,000
$1,900,000
The Company also has investment tax credit carryforwards of approximately
$65,000 at
December 31, 1997 that expire from December 31, 1994 through 2000.
The Company follows the policy of expensing intangible drilling costs for
income tax
purposes whereas such costs are capitalized for financial reporting
purposes. Deferred
income taxes have not been provided on this timing difference because the
income tax
effect of the operating loss carryforwards, which are expected to reverse
during the
carryforward period, exceeds the deferred income tax credits which would
otherwise have
been recorded if, and to the extent that, the loss carryforwards are
utilized in future years.
The 1975 Tax Reduction Act (the Act), among other provisions, generally
provides for
the repeal of the statutory (percentage) depletion allowance for tax
years ending after
1974. However, the Act exempts certain companies from such repeal. Since
the Company
continues to qualify under the exemption provided, the Act has had no
effect on the
Company.
Due to a lack of funds to pay for professional services, the Company has
not filed income
tax returns for the years December 31, 1988 to December 31, 997. The
Company incurred
losses during these periods or had net operating loss carryforwards to
offset any taxable
income during this time period.
-29-
CHEYENNE RESOURCES, INC.
Notes to Unaudited Financial Statements
7. Major Customers
Sales for the periods ended December 31, 1997, 1996 and 1995 include
sales to major
customers, each of which accounted for 10% or more to the total sales of
the Company
for each period.
Major Customer
Year ended December 31, 1997:
Western Production Company $142,422
Year ended December 31, 1996:
Western Production Company 74,624
Year ended December 31, 1995:
Western Production Company 73,057
8. Capital Stock Matters
On March 16, 1982, the Board of Directors approved the adoption of an
Incentive Stock
Option Plan. The Incentive Stock Option Plan was subsequently approved by
the
Company's shareholders at its annual meeting held on August 12, 1982.
Incentive stock
options were then granted to the Company's president and vice president
in charge of
finance in the amount of 200,000 shares each, exercisable at $.50 per
share. At December
31, 1987, 600,000 shares of the Company's $.01 par value common stock
have been
granted under the new Incentive Stock Option Plan, none of which were
exercised at
December 31, 1997 and 1996.
-30-
CHEYENNE RESOURCES, INC.
Unaudited Supplementary Information
December 31, 1997 and 1996
Years ended December 31, 1997, 1996 and 1995
-31-
The following financial statements are unaudited
-32-
CHEYENNE RESOURCES, INC.
Unaudited Capitalized Costs Relating to Oil and Gas
Producing Activities
December 31, 1997 and 1996
1997 1996
Producing oil and gas properties $460,196
$1,213,705
Nonproducing oil and gas properties 31,439
31,439
Oil production equipment 0
413,237
491,635 1,658,381
Less accumulated depletion
and depreciation 302,312 1,160,987
Net capitalized costs $489,323
$ 497,394
-33-
CHEYENNE RESOURCES, INC.
Unaudited Costs Incurred in Oil and Gas Property
Acquisition, Exploration, and Development Activities
Years ended December 31, 1997, 1996 and 1995
1997 1996 1995
Acquisition of properties:
Producing $50,000 $0 $0
Nonproducing
Exploration costs 0 0 0
Development costs 0 0 0
$50,000 $0 $0
-34-
CHEYENNE RESOURCES, INC.
Unaudited Results of Operations for Producing Activities
Years ended December 31, 1997, 1996 and 1995
1997 1996 1995
Revenues, oil and gas sales $73,149 $84,508
$87,832
Production costs 38,452 53,305 61,825
Exploration expenses 0 0 0
Depreciation, depletion and
amortization 2,209 25,352 26,350
40,661 78,657 88,175
Income (Loss) before income taxes 32,488 5,851 (343)
Income tax expense 0 0 0
Results of operations from producing
activities (ex-cluding corporate
overhead and interest costs) $32,488 $ 5,851 $ (343)
-35-
CHEYENNE RESOURCES, INC.
Unaudited Reserve Quantity Information
At December 31, 1997, the Company did not have reserve information to prepare
reserve
schedule or standardized measures of discounted future net cash flows related
to proven oil and
gas reserves.
-36-
CHEYENNE RESOURCES, INC.
Financial statement Schedules
Years ended December 31, 1997, 1996 and 1995
-37-
The following financial statements are unaudited
-38-
CHEYENNE RESOURCES, INC.
SCHEDULE V - UNAUDITED PROPERTY AND EQUIPMENT
Column A Column B Column C Column D
Column E Column F
Balance at Other changes
Balance at
Beginning Retirements
Debit or End of
Classification of Period Additions or Sales
(Credit) Period
For the year ended
December 31, 1997:
Properties:
Producing $1,213,705 50,000(b) 803,509(a)
0 460,196
Nonproducing 31,439 0 0 0
31,439
Equipment:
Office furniture and
Equipment 33,394 0 0 0
33,394
Oil production equipment 413,237 0
413,237(a) 0 0
$1,691,775 50,000 1,216,746
0 525,029
For the year ended
December 31, 1996:
Properties:
Producing $1,429,743 0 216,038(a)
0 1,213,705
Nonproducing 31,439 0 0 0
31,439
Equipment:
Office furniture and
Equipment 33,394 0 0 0
33,394
Oil production equipment 520,390 0
107,153(a) 0 413,237
$2,014,966 0 323,191
0 1,691,775
For the year ended
December 31, 1996:
Properties:
Producing $1,429,743 0 0
0 1,429,743
Nonproducing 31,439 0 0 0
31,439
Equipment:
Office furniture and
Equipment 33,394 0 0 0
33,394
Oil production equipment 520,390 0
0 0 520,390
$2,014,966 0 0
0 2,014,966
-39-
CHEYENNE RESOURCES, INC.
SCHEDULE VI -ACCUMULATED DEPLETION OF PROPERTY AND
ACCUMULATED DEPRECIATION OF EQUIPMENT
Column A Column B Column C Column D
Column E Column F
Balance at Other changes
Balance at
Beginning Retirements Debit or End of
Classification of Period Additions or Sales
(Credit) Period
For the year ended
December 31, 1997:
Properties:
Producing $844,454 2,209 544,351
0 302,312
Nonproducing 0 0 0 0
0
Equipment:
Office furniture and
Equipment 33,394 0 0 0
33,394
Oil production equipment 316,532 0 316,532
0 0
$1,194,380 2,209 860,883
0 335,70
For the year ended
December 31, 1996:
Properties:
Producing $938,556 12,676 106,778
0 844,454
Nonproducing 0 0 0 0
0
Equipment:
Office furniture and
Equipment 33,394 0 0 0
33,394
Oil production equipment 374,573 12,676 70,717
0 316,532
$1,346,523 25,352 177,495
0 1,194,380
For the year ended
December 31, 1995:
Properties:
Producing $925,381 13,175 0
0 938,556
Nonproducing 0 0 0 0
0
Equipment:
Office furniture and
Equipment 33,394 0 0 0
33,394
Oil production equipment 361,398 13,175 0
0 374,573
$1,320,173 26,350 0
0 1,346,523
-41-
CHEYENNE RESOURCES, INC.
SCHEDULE V - UNAUDITED PROPERTY AND EQUIPMENT
(a) Cost of property sold or traded
(b) Purchase of producing overriding royalty interests.
-40-
CHEYENNE RESOURCES, INC.
SCHEDULE X - UNAUDITED SUPPLEMENTARY INCOME STATEMENT
INFORMATION
Column A Column B
Item Charged to Costs and Expenses
Year Ended December 31,
1997 1996 1995
Maintenance and repairs * * *
Depreciation 2,209 12,676 13,175
Amortization * * *
Taxes, other than income taxes:
Payroll * * *
Property * * *
Severance and production 7,972 1,181 10,383
Royalties * * *
Advertising * * *
* Less than 1% of revenue
-42-