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NWTR > SEC Filings for NWTR > Form 10-Q on 5-Nov-2012All Recent SEC Filings

Show all filings for NEW WESTERN ENERGY CORP

Form 10-Q for NEW WESTERN ENERGY CORP


5-Nov-2012

Quarterly Report


Item 2. Management's Discussion and Analysis or Plan of Operation

This 10-Q contains forward-looking statements. Our actual results could differ materially from those set forth as a result of general economic conditions and changes in the assumptions used in making such forward-looking statements. The following discussion and analysis of our financial condition and results of operations should be read together with the audited consolidated financial statements and accompanying notes and the other financial information appearing elsewhere in this report. The analysis set forth below is provided pursuant to applicable Securities and Exchange Commission regulations and is not intended to serve as a basis for projections of future events.

Overview

We are an oil and gas and mineral exploration and production company with current projects located in Kansa, Oklahoma and Texas. Our principal business is in the acquisition, exploration and development of, and production from oil, gas and mineral properties. We have a limited operating history with nominal revenues. On December 1, 2010, we formed an entity named New Western Texas Oil and Gas Corporation ("New Western Texas") incorporated in the State of Nevada, as our wholly-owned subsidiary. New Western Texas started its operations in January 2011. On January 2, 2012, we acquired 100% of the issued and outstanding capital stock of Royal Texas Energy Co. ("RTE"), a Texas corporation. RTE's principal business operations are acquisitions, exploration and development of, and production from oil and gas properties located in Texas. We acquired RTE primarily due to its lease ownership interests in oil and gas properties and the Company's requirement to have an operator for exploration and production of oil and gas in Texas.

We were incorporated in the State of Nevada on September 25, 2008. Our principal executive offices are located at 20 Truman, Suite 204, Irvine, California 92620. Our telephone and fax numbers are (949) 435-0977 and (949) 861-3123, respectively.

Our Current Business

Our principal business strategy is to build our business through the acquisition of producing oil and natural gas wells, interests and leases. We plan to ultimately engage in the acquisition and exploration of oil and gas properties and to exploit oil and gas reserves we discover that demonstrate economic feasibility. We plan to explore new oil and natural gas wells and continue on recovery from stripper wells. A stripper well or "marginal well" is an oil well that is nearing the end of its economical life. Oil wells are generally classified as stripper wells when they produce ten barrels per day or less for any twelve month period. We plan to acquire working interests in oil and natural gas production companies in the United States that are located in oil and gas producing areas. We believe that there are opportunities in these areas for the development of additional oil and gas reserves. Such new reserves might come from the development of existing but as yet undeveloped reserves as well as from future success in exploration. We seek to add proved reserves and increase production through the use of advanced technologies, including detailed reservoir engineering analysis, drilling development wells utilizing sophisticated techniques and selectively recompleting existing wells. We also focus on reducing the operating costs associated with our properties. We believe that the properties we have acquired have significant potential and in certain cases have not been actively developed in the past.

Results of Operations

Our consolidated results of operations for the three months and nine months ended September 30, 2012 included the operation of the Company and our wholly-owned subsidiaries New Western Texas Oil and Gas Corporation and Royal Texan Energy Co. Our results of operations for the three months and nine months ended September 30, 2011 included the operations of the Company and our wholly-owned subsidiary New Western Texas Oil and Gas Corporation.

We reported net losses of $105,525 and $321,836 for the three months and nine months ended September 30, 2012, compared to net losses of $38,494 and $198,960 for the same periods ended September 30, 2011. The increase in losses was principally attributable to increase in (i) general and administrative expenses relating to payroll costs, legal, professional and consulting fees, (ii) oil and gas production costs and (iii) depreciation and depletion costs incurred by the Company.

Revenues

Revenues for the three months and nine months ended September 30, 2012 were $24,398 and $76,043 compared to $42,567 and $42,567 for the same comparable periods in 2011. Revenues increased for the nine months period ended September 30, 2012 as we focused on drilling and extracting oil from Swenson, Trice and Terry Heirs leases and expended funds to develop the acquired properties.

Operating Expenses

General and administrative expenses (G&A) for the three months and nine months ended September 30, 2012 were $92,326 and $314,258 compared to $63,608 and $195,465 for the same comparable periods in 2011. G&A expenses increased by $28,718 or 45% for the three months period ended September 30, 2012 compared to the same period in 2011, and $118,793 or 61% for the nine months ended September 30, 2012 as compared to the same periods in 2011, primarily due to increase in accounting and consulting fees, increase in payroll costs, increase in legal and professional fees, and increase in travel and other administrative expenses to manage the operations.


Oil and gas production costs for the three months and nine months ended September 30, 2012 were $28,969 and $56,007 compared to $14,490 and $27,993 for the same periods in 2011. We incurred higher oil and gas production costs in 2012 compared to 2011 due to our expanded drilling operations for the nine months ended September 30, 2012 compared to the previous comparable period in 2011.

Depreciation and depletion expense for the three months and nine months ended September 30, 2012 was $6,234 and $18,752 compared to $426 and $1,278 for the same periods in 2011. Depreciation expense increased due to the receipt of lease and well equipment as a result of the acquisition of RTE.

Interest expense for the three months and nine months ended September 30, 2012 was $2,844 and $9,412 compared to $1,250 and $1,250 for the same periods in 2011. Interest expense increased as a result of the two promissory notes executed by us for our working capital needs, assumption of bank loans pursuant to the acquisition of RTE, and a note payable to the former stockholders of RTE.

Interest income for the three months and nine months ended September 30, 2012 was $450 and $1,350 compared to $0 for the same periods in 2011. Interest income consisted of interest earned on the note receivable from a third party for sale of marketable securities by us in December 2011. No interest income was earned during the three months and nine months ended September 30, 2011.

Liquidity and Capital Resources

Cash and cash equivalents were $33,763 at September 30, 2012 compared to $16,403 at December 31, 2011. As shown in the accompanying consolidated financial statements, we recorded a loss of $321,836 for the nine months ended September 30, 2012 compared to a loss of $198,960 for the same period in 2011. Our current liabilities exceeded our current assets by $217,216 at September 30, 2012 and net cash used in operating activities for the nine months ended September 30, 2012 was $190,162. These factors and our ability to meet our debt obligations from current operations, and the need to raise additional capital to accomplish our objectives raises doubt about our ability to continue as a going concern.

We expect our expenses will continue to increase during the foreseeable future as a result of increased operational expenses and the development of additional oil and gas wells. We anticipate generating only minimal revenues over the next twelve months. Consequently, we are dependent on the proceeds from future debt or equity investments to sustain our operations and implement our business plan. If we are unable to raise sufficient capital, we will be required to delay or forego some portion of our business plan, which would have a material adverse affect on our anticipated results from operations and financial condition. There is no assurance that we will be able to obtain necessary amounts of capital or that our estimates of our capital requirements will prove to be accurate.

We presently do not have any available credit, bank financing or other external sources of liquidity. Due to our historical operating losses, our operations have not been a source of liquidity. We will need to obtain additional capital in order to expand operations and become profitable. In order to obtain capital, we may need to sell additional shares of our common stock or borrow funds from private lenders. There can be no assurance that we will be successful in obtaining additional funding.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of such securities may result in dilution to existing stockholders. If additional funds are raised through the issuance of debt securities, these securities may have rights, preferences and privileges senior to holders of common stock and the terms of such debt could impose restrictions on our operations. Regardless of whether our cash assets prove to be inadequate to meet our operational needs, we may seek to compensate providers of services by issuance of stock in lieu of cash, which may also result in dilution to existing shareholders. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing.

We have been successful in the past in raising capital, however, no assurance can be given that these sources of financing will continue to be available to us and/or that demand for our equity/debt instruments will be sufficient to meet our capital needs, or that financing will be available on terms favorable to us. If funding is insufficient at any time in the future, we may not be able to take advantage of business opportunities or respond to competitive pressures, or may be required to reduce the scope of our planned service development and marketing efforts, any of which could have a negative impact on our business and operating results. In addition, insufficient funding may have a material adverse effect on our financial condition, which could require us to:

Curtail our operations significantly
Sell our oil, gas and mineral leases
Seek arrangements with strategic partners or other parties that may require us to relinquish significant rights to oil, gas and mineral leases or markets, or
Explore other strategic alternatives including a merger or sale of our Company.


Operating Activities

Net cash used in operating activities for the nine months ended September 30, 2012 was $190,162 which resulted primarily from our net loss of $321,836, decrease in accounts receivable of $26,883, increase in prepaid expenses and other current assets of $7,477, decrease in accounts payable of $13,296, increase in accrued expenses of $16,812, and increase in accrued officer's compensation payable of $90,000.

Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2012 was $99,890 due to cash paid for lease obligations of $60,000, cash acquired as part of acquisition of RTE amounting to $12,058, cash paid for acquisition pursuant to supplemental agreement of $20,186, purchase of property and equipment of $1,013, cash received from sale of property & equipment of $5,000, and purchase and capitalized costs of oil and gas properties of $35,749.

Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2012 was $307,412. Proceeds from the sale of common stock were $499,200, cash repayments for notes payable was $107,087, deposit received from a stockholder for purchase of common stock amounting to $47,299, cash advances of $57,000 received from a related party for working capital requirements, and repayment of advances received from a related party were $189,000.

As a result of the above activities, we experienced a net increase in cash of $17,360 for the nine months ended September 30, 2012. Our ability to continue as a going concern is still dependent on our success in obtaining additional financing from investors or from sale of our common shares.

Off-balance Sheet Arrangements

Since our inception through September 30, 2012, we have not engaged in any off-balance sheet arrangements as defined in Item 303(c) of the SEC's Regulation S-B.

Recent Accounting Pronouncements

The Company has implemented all new accounting pronouncements that are in effect and that may impact its consolidated financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

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