-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MU7bZYrdnLOYxm31LrW0HWt7JSJlpKTkQjbeqR2RnNANMTjUenYS3BRforO8v/EU cw4SOzU1GzHBPmVJ62uPzA== 0000930661-97-001474.txt : 19970610 0000930661-97-001474.hdr.sgml : 19970610 ACCESSION NUMBER: 0000930661-97-001474 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19970606 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOTHIC ENERGY CORP CENTRAL INDEX KEY: 0000878482 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 222663839 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-19753 FILM NUMBER: 97620027 BUSINESS ADDRESS: STREET 1: 5727 S LEWIS AVE STE 700 STREET 2: P O BOX 186 CITY: TULSARD STATE: OK ZIP: 74105 BUSINESS PHONE: 9187495666 FORMER COMPANY: FORMER CONFORMED NAME: TNC MEDIA INC DATE OF NAME CHANGE: 19930328 10QSB/A 1 FORM 10-QSB/A AMENDMENT NO.2 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB/A AMENDMENT NO. 2 [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the period from to . ------------------------------ ------------------------- Commission file number 0-19753 GOTHIC ENERGY CORPORATION ------------------------- (Exact name of registrant as specified in its charter) DELAWARE 22-2663839 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 5727 SOUTH LEWIS, #700, TULSA, OKLAHOMA 74105-7148 (Address of principal executive offices) 918-749-5666 (Registrant's telephone number, including area code) Check whether the issuer (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 . -------------- ------------ APPLICABLE ONLY TO CORPORATE ISSUERS: As of May 13, 1996, 12,369,991 shares of the Registrant's Common Stock, $.01 par value, were outstanding. FORM 10-QSB/A AMENDMENT NO. 2 INTRODUCTION This amendment to Items 1 and 2 of Gothic Energy Corporation's quarterly filing on Form 10-QSB for the quarterly period ended March 31, 1996 includes changes from the previous filing to reflect an imputed dividend of $143,896 on the Company's 7 1/2% Cumulative Convertible Preferred Stock for the period. GOTHIC ENERGY CORPORATION TABLE OF CONTENTS PART I - FINANCIAL INFORMATION PAGE
ITEM 1 - FINANCIAL STATEMENTS Consolidated Unaudited Balance Sheets March 31, 1996 and December 31, 1995 3 Consolidated Unaudited Statements of Operations Three Months ended March 31, 1996 and 1995 4 Consolidated Unaudited Statements of Cash Flows Three Months ended March 31, 1996 and 1995 5 Notes to Unaudited Consolidated Financial Statements 6 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS Management's Discussion and Analysis or Plan of Operations 9 PART II - OTHER INFORMATION PAGE Signatures 12
GOTHIC ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET March 31, December 31, ASSETS 1996 1995 ------ ------------ ------------ Current assets: Cash and cash equivalents $ 1,588,320 $ 157,559 Oil and gas receivable 1,740,007 295,344 Receivable from officers and employees 18,857 16,459 Other 51,104 74,697 ------------ ------------ Total current assets 3,398,288 544,059 Property and equipment: Oil and gas properties on full cost method 24,453,290 8,640,480 Equipment, furniture and fixtures 254,260 135,807 Accumulated depreciation and depletion (1,396,414) (780,414) ------------ ------------ Property and equipment, net 23,311,136 7,995,873 Notes receivable: Affiliate - 123,000 Other 61,648 61,648 Investment - 200,000 Other assets, net 1,622,842 377,541 ------------ ------------ Total assets $ 28,393,914 $ 9,302,121 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable trade $ 1,190,587 $ 1,019,543 Oil and gas revenue payable 1,312,294 94,841 Accrued liabilities 268,605 516,176 Notes payable 25,000 2,900,000 Current portion long-term debt 2,220,000 2,220,000 ------------ ------------ Total current liabilities 5,016,486 6,750,560 Long-term debt 8,353,120 3,025,573 Gas imbalance liability 1,189,956 - Stockholders' equity: Preferred stock, par value $.05, authorized 500,000 shares; issued and outstanding 5,540 shares 277 - Common stock, par value $.01, authorized 30,000,000 shares; issued and outstanding 12,236,657 and 5,501,785 share 122,367 55,018 Additional paid in capital 32,376,276 13,965,236 Accumulated deficit (18,664,568) (14,494,266) ------------ ------------ Total stockholders' equity 13,834,352 (474,012) ------------ ------------ Total liabilities and stockholders' equity $ 28,393,914 $ 9,302,121 ============ ============
See accompanying notes 3
GOTHIC ENERGY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) For the three months ended March 31, -------------------------- 1996 1995 ----------- ------------ Revenues: Oil and gas sales $ 1,608,216 $ 137,527 Well operations 161,213 - Interest and other income 1,157 3,302 ------------ ----------- Total revenues 1,770,586 140,829 Costs and expenses: Lease operating expenses 883,097 86,469 Depletion, depreciation and amortization 626,367 60,900 Selling, general and administrative expense 406,307 232,934 Provision for impairment of oil and gas properties 5,050,000 486,000 ------------ ----------- Operating loss (5,195,185) (725,474) Interest expense 321,545 49,310 ------------ ----------- Loss before income taxes and extraordinary item $ (5,516,730) $ (774,784) Income tax benefit 2,992,547 - ------------ ----------- Loss before extraordinary item (2,524,183) (774,784) Loss on early extinguishment of debt 1,432,973 - ------------ ----------- Net loss $ (3,957,156) $ (774,784) Preferred dividend 69,250 - Preferred dividend - amortization of preferred discount 143,896 - ------------ ----------- Net loss available for common shares $ (4,170,302) $ (774,784) ============ =========== Loss per common share before extraordinary item (A) (.28) (.24) ============ =========== Loss per common share $ (.43) $ (.24) ============ =========== Weighted average common shares outstanding 9,673,237 3,187,777 ============ ===========
(A) Loss per common share before extraordinary item is computed after giving effect to the preferred dividends, both actual and imputed. See accompanying notes 4 GOTHIC ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
For the three months ended March 31, -------------------------- 1996 1995 ----------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(3,957,156) $ (774,784) ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED (USED BY) OPERATING ACTIVITIES: Depreciation and amortization 626,367 60,900 Amortization of discount and loan costs - 37,562 Provision for impairment of oil and gas properties 5,050,000 486,000 Deferred income tax benefit (2,992,547) - Loss on early extinguishment of debt 1,432,973 - Changes in assets and liabilities: Increase in accounts receivable (247,533) (36,672) Decrease in other current assets 40,653 2,527 Increase (decrease) in accounts and revenues payable 81,904 (107,835) Decrease in accrued liabilities (670,856) (19,288) Decrease in other assets 205,700 - ----------- ----------- Net cash used by operating activities (430,495) (351,590) Cash flows from investing activities: Proceeds from sale of investment 200,000 - Proceeds from collection on note receivable 123,000 - Proceeds from sale of property 5,962 36,943 Purchase of property and equipment (220,939) (3,219,432) Property development (126,431) (50,488) Acquisition of business, net of cash acquired (17,592,973) - Other - (8,950) ----------- ----------- Net cash used by investing activities (17,611,381) (3,241,927) Cash flows from financing activities: Payments on short-term debt (1,560,000) - Proceeds of short-term debt - 1,850,000 Payments on long-term debt (6,913,258) (175,000) Proceeds of long-term debt 11,000,000 - Proceeds from sale of common stock, net 13,141,368 1,472,000 Proceeds from sale of preferred stock, net 3,997,430 - Other (192,903) - ----------- ----------- Net cash provided by financing activities 19,472,637 3,147,000 Net change in cash and cash equivalents 1,430,761 (446,517) Cash and cash equivalents, beginning of period 157,559 824,978 ----------- ----------- Cash and cash equivalents, end of period $ 1,588,320 $ 378,461 =========== ===========
See accompanying notes 5 GOTHIC ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. GENERAL AND ACCOUNTING POLICIES BUSINESS - The consolidated financial statements include the accounts of Gothic Energy Corporation, (the "Company"), and its subsidiaries, Gothic Energy of Texas, Inc. ("Gothic Texas"), since its inception in 1995 and Buttonwood Energy Corporation and its subsidiaries Buttonwood Petroleum, Inc. and Dakota Services, Inc. ("Buttonwood") since their acquisition on January 30, 1996. Since November 1994, the Company has been primarily engaged in the business of acquiring, developing and exploiting oil and gas reserves. 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 of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the opinion of management of the Company, the accompanying financial statements contain all adjustments, none of which were other than normal recurring accruals, necessary to present fairly the financial position of the Company as of March 31, 1996, and the results of its operations and cash flows for the periods ended March 31, 1996 and 1995. The results of operations for the periods represented are not necessarily indicative of the results of operations to be expected for the full year. NOTE 2. OIL AND GAS PROPERTIES The Company's oil and gas reserves are estimated annually by petroleum engineers. The Company's calculation of depletion, depreciation and amortization ("DD&A") includes estimated future expenditures to be incurred in developing proved reserves and estimated dismantlement and abandonment costs, net of salvage values. In the event the unamortized costs of oil and gas properties being amortized exceeds the full cost ceiling as defined by the SEC, the excess is charged to expense in the period during which such excess occurs. The full cost ceiling is based principally on the estimated future discounted net cash flows from the Company's oil and gas properties. With the recording of the Buttonwood acquisition, and based on the reserve report for the quarter ending March 31, 1996, the Company recorded a $5,050,000 provision for impairment of oil and gas properties at March 31, 1996. Such provision was reflected in the balance sheet as a reduction of the cost of oil and gas properties. Estimates of oil and gas reserves are imprecise. Changes in the estimates or declines in oil and natural gas prices could cause the Company in the near-term to reduce the carrying value of its oil and natural gas properties. The Company has reclassified $916,000 of a previous provision for impairment of oil and gas properties, as of December 31, 1995, from accumulated depreciation and depletion to a reduction in the cost of oil and gas properties to be consistent with classifications in 1996. Additionally, the Company has also reduced, as of March 31, 1996, the cost of oil and gas properties and equipment, furniture and fixtures by $6,736,066 and $377,751, respectively, for accumulated depreciation and depletion related to the acquisition of Buttonwood, which had been erroneously included in accumulated depreciation and depletion. These reclassifications had no effect on net property and equipment. NOTE 3. OIL AND GAS PROPERTY ACQUISITION BUTTONWOOD ACQUISITION - On January 30, 1996 the Company completed the acquisition of Buttonwood Energy Corporation (the "Buttonwood Acquisition"), at a price of $17,912,500, net of a $1,000,000 deposit paid in 1995 and charged to expense. The aggregate purchase price of $18,008,712 including acquisition costs of $389,212, was allocated to he assets acquired and liabilities assumed as follows: 6
Current assets $ 1,632,327 Property and equipment 20,784,016 Other assets 1,435,500 Current liabilities (1,660,628) Gas imbalance (1,189,956) Deferred income taxes (2,992,547) ------------ Aggregate purchase price 18,008,712 Less: Cash acquired (415,739) ------------ Net cash paid $ 17,592,973 ============
The Buttonwood Acquisition was financed with proceeds from a public offering of the Company's common stock and preferred stock, a bridge financing and the establishment of a credit facility with Bank One, Texas. The public offering and the preferred stock financing, generated net proceeds of $17,216,000. The remaining purchase price was paid out of the proceeds from the Bank One, Texas Credit Facility. The acquisition was accounted for under the purchase method and, accordingly, results of operations of the acquired operations are included in the Company's results of operations since the date of acquisition. NOTE 4. FINANCING ACTIVITIES BANK ONE LOAN - Effective January 30, 1996, the Company entered into an $11 million revolving loan facility with Bank One Texas. The proceeds of the borrowing were used to finance a portion of the purchase price of the Buttonwood Acquisition , and to repay outstanding indebtedness to Stratum Group, L.L.C. ("Stratum"). The amount outstanding on the Bank One Loan was $10,557,000 at March 31, 1996. The terms of the Bank One Loan provide for principal reduction payments at the rate of $185,000 per month, plus interest, commencing the first month after the borrowing is incurred with all outstanding principal and interest due and payable three years from the initial borrowing date. Interest is payable at the option of the Company, either at the rate of 1% over Bank One's base rate or up to 3.75% (based on the principal balance outstanding), over the rate for borrowed dollars by the lending bank in the London Interbank Market. The indebtedness is collateralized by first liens on all of the Company's oil and gas properties, including those acquired from Buttonwood. The loan agreement relating to the credit facility includes various affirmative and negative covenants including, among others, the requirements that the Company maintain certain ratios of current assets to current liabilities, and debt service coverage. The loan agreement also established an amount of minimum tangible net worth and places a limitation on annual selling, general and administrative expenses. Material breaches of these or other covenants which are not cured or waived could result in this indebtedness becoming immediately due and payable and empowering the lender to foreclose against the collateral for the loan. STRATUM LOAN - On June 2, 1995, Gothic Texas entered into an agreement with Stratum in which Stratum agreed to loan Gothic Texas a maximum aggregate of $8,131,500, of which only $6,756,500 was drawn and was used to complete the Johnson Ranch Acquisition. At January 30, 1996 the amount outstanding was $6,575,687. On that date the Company, with proceeds from its new credit facility, paid Stratum in full and terminated its loan agreement with them. This transaction resulted in a loss on extinguishment of debt of $1,432,973. Effective January 30, 1996 Quest Capital Corporation ("Quest"), converted $1,290,000 of its $1,850,000 note into 1,290 shares of the Company's 7 1/2% Cumulative Convertible Preferred Stock. The remaining $560,000 of indebtedness and $265,000 of accrued interest and other amounts due Quest were converted into a subordinated note in the principal amount of $825,000 which was paid by the Company on March 13, 1996. BRIDGE FINANCING - A $1,000,000 note owing to Quest, Epoch Capital Corporation and another lender , along with accrued interest, was paid, on January 30, 1996 at the closing of the public offering by the Company. PUBLIC OFFERING - The Company completed a public offering of 2,545,000 Units at a price of $6.00 per Unit. Each Unit consisted of three shares of the Company's $.01 par value common stock and three redeemable common stock purchase warrants, each redeemable for one share of common stock at $2.40 per share. The offering netted the Company approximately $12,970,000, which, together with the proceeds from the credit facility and preferred stock financing, was applied to the purchase of Buttonwood and the repayment of indebtedness. 7 PREFERRED STOCK OFFERING - On January 30, 1996 the Company completed a preferred stock financing of 5,540 shares of the Company's 7 1/2% Cumulative Convertible Preferred Stock. The financing included 1,290 shares issued to Quest in exchange for $1,290,000 principal amount of a note. The remaining 4,250 shares were sold for an aggregate cash price of $4,250,000. The 5,540 shares of 7 1/2% Cumulative Convertible Preferred Stock issued are convertible commencing December 31, 1996, into shares of the Company's Common Stock at a conversion price per share of Common Stock of $2.00, if calculated as of March 31, 1996. On the basis of the above mentioned conversion price, an aggregate of 2,770,000 shares of Common Stock would be issuable on conversion. Due to the fact that the preferred stock is convertible into the Company's common stock at a discount from market, the Company has computed an imputed dividend of $791,429, which is based on the common stock market value of $2.00 per share at the date of issuance and a 12 1/2% discount. The discount is being accreted as an imputed dividend through December 31, 1996 and accordingly affects income available for common shares. NOTE 5. SUBSEQUENT EVENTS ADDITIONAL ACQUISITIONS - Subsequent to the quarter ending March 31, 1996, the Company signed a purchase agreement to acquire from Comstock Resources, Inc. ("Comstock"), its interest in 164 wells, located primarily in Oklahoma and Arkansas, of which 71 will be operated by the Company. The purchase price is $6.6 million, subject to any closing adjustments. Additionally, the Company has signed a letter of intent to acquire Stratum's 7% royalty interest in the Johnson Ranch properties which was assigned to it as part of the Johnson Ranch Acquisition in consideration for the financing provided. The purchase price is $800,000. In addition, the Company has agreed to reduce to $3.25 per share the exercise price of the warrants to purchase 1,000,000 shares of common stock issued to Stratum in consideration for providing the Johnson Ranch Acquisition financing. Prior to such amendment, the warrants were exercisable at $3.50 per share with respect to 500,000 shares and $4.50 per share with respect to 500,000 shares. The Company intends to fund these acquisitions with an anticipated increase in its Bank One Credit Facility to approximately $17 million. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The following is management's discussion and analysis of certain significant factors which have affected the Company's earnings, financial condition and liquidity during the periods included in the accompanying Consolidated Financial Statements. Commencing in the last quarter of 1994, the Company redirected its business efforts toward acquiring natural gas and oil reserves and the production, development and exploitation of those reserves. On November 30, 1994, the Company sold the outstanding stock of its wholly owned subsidiary, Pike County Dispatch, Inc. On January 19, 1995, the Company completed its first acquisition of oil and gas reserves. On January 30, 1996, the Company completed the following transactions: (i) it completed the acquisition of Buttonwood Energy Corporation (the "Buttonwood Acquisition"); (ii) it borrowed $11 million pursuant to a credit facility (the "Credit Facility") entered into with a bank; (iii) it completed the public sale of securities (the "Offering") yielding net proceeds of approximately $12,970,000; and (iv) it sold 5,540 shares of 7 1/2% Cumulative Preferred Stock (the "Preferred Stock Financing") for aggregate consideration of $5,540,000 inclusive of $1,290,000 principal amount of a note of the Company exchanged for shares. RESULTS OF OPERATIONS - --------------------- Revenues were $1,770,586 for the three months ended March 31, 1996, as compared to $140,829 for the same period ended March 31, 1995. This increase is the result of acquisitions of oil and gas properties made by the Company described above. Higher prices for oil and gas sales also contribute to the increase. Oil and gas revenues for the period ended March 31, 1996 were $1,608,216, with $676,550 coming from oil sales and $931,666 from gas sales. Oil sales were based on the sale of 35,807 barrels at an average price of $18.89 per barrel. Gas sales were based on the sale of 494,401 mcf at an average price of $1.88 per mcf. The Company incurred lease operating expenses in the three months ended March 31, 1996 of $883,097. This compares to $86,469 for the same period in 1995. This increase is also a result of the acquisitions completed since January 1995. Depletion, depreciation and amortization expense increased to $626,367 for the three months ended March 31, 1996 from $60,900 for the same period in the prior year. Depletion on the oil and gas properties amounted to $607,000 for the three months ended March 31, 1996 and $60,000 for the comparable period in 1995. Such increase was primarily due to the Buttonwood Acquisition in 1996. Selling, general and administrative costs were $406,307 for the three months ended March 31, 1996, as compared to $232,934 for the three months ended March 31, 1995. The major reason for this increase is the addition of personnel and related costs due to acquisitions made since the quarter ending March 31, 1995. The increase also includes some one-time costs related to the completion of the Buttonwood transaction. With the recording of the Buttonwood acquisition, and based on the reserve report for the quarter ending March 31, 1996, the Company recorded a $5,050,000 provision for impairment of oil and gas properties at March 31, 1996. Such provision was reflected in the balance sheet as a reduction of the cost of oil and gas properties. Estimates of oil and gas reserves are imprecise. Changes in the estimates or declines in oil and natural gas prices could cause the Company in the near-term to reduce the carrying value of its oil and natural gas properties. Management of the Company evaluates oil and gas reserve acquisition opportunities in the light of many factors, only a portion of which may be reflected in the amount of proved oil and gas reserves proposed to be acquired. In determining the purchase price to be offered, the Company does not solely rely on proved oil and gas reserves nor the value of such reserves, as defined and determined in accordance with Regulation S-X Rule 4-10. Factors considered include, among others, the probable reserves of the interests inteneded to be acquired, anticipated efficiencies and cost reductions that can be made in operating the producing properties, additional reserves that management believes can be proven relatively inexpensively based on management's knowledge of the area where the interests are located and existing producing properties owned by the Company. Management does not necessarily conclude that an acquisition is not favorable because there may be a full cost ceiling write-down associated with it (in fact the Company does not perform a ceiling test for specific properties acquired because the ceiling test is performed at each quarter and year end for all of the Company's properties included in its cost center and is based on prices for oil and gas as of that date which may be higher or lower than the prices used when evaluating potential acquisitions) but will review the transaction in the light of proved and probable reserves, historic and seasonal fluctuations in the prices of oil and gas, future prices for oil and gas, the factors described above as well as other factors that may relate to the specific properties under review. Accordingly, although the Company does not anticipate any further full cost ceiling write-downs which may be indirectly attributed to the Buttonwood Acquisition, the Company may, however, experience ceiling test write-downs in the future arising out of other acquisitions. Interest and financing costs increased $272,235, to $321,545 for the three months ended March 31, 1996 as compared to the same period in 1995. The increase is the result of interest costs related to the financing used by the Company to acquire oil and gas properties. The Company recorded an extraordinary loss of $1,432,973 on the early extinguishment of debt during the quarter ended March 31, 1996, with the payoff of the Stratum loan. The Company also recognized $69,250 in preferred dividends and $143,896 in amortization of preferred discount on its 7 1/2% cumulative preferred stock during the period. 9 CAPITAL RESOURCES AND LIQUIDITY - ------------------------------- GENERAL - ------- The Company's capital requirements relate to the acquisition, exploration, enhancement, development and operation of oil and gas producing properties. In general, because oil and gas reserves the Company has acquired and intends to acquire are depleted by production over time, the success of its business strategy is dependent upon a continuous acquisition, exploitation, enhancement, development and operation program. In order to achieve profitability and generate cash flow, the Company will be dependent upon acquiring or developing additional oil and gas properties or entering into joint oil and gas well development arrangements. The Company will continue to require access to debt and equity capital or the availability of joint venture development arrangements, among other possible sources, to pursue its business strategy of additional property acquisition and development. The Company has no present arrangements to raise additional capital from the sale of its securities or to enter into joint development arrangements and no assurance can be given that the Company will be able to obtain additional capital or enter into joint venture development arrangements on satisfactory terms to implement the Company's business strategy. The Company has funded its recent capital needs through the issuance of capital stock and borrowings. Without raising additional capital or entering into joint oil and gas well development arrangements, the Company will be unable to acquire additional producing oil and gas properties and its ability to develop its existing oil and gas properties will be limited to the extent of the available cash flow. No assurance can be given as to the availability or terms of any such additional capital or joint development arrangements or that such terms as are available may not be dilutive to the interests of the Company's stockholders. At March 31, 1996 the Company had a cash position of $1,588,320 and a working capital deficit of $1,618,198. ACQUISITION FINANCING - --------------------- Under the terms of the Buttonwood Acquisition agreement, which was completed on January 30, 1996, the Company paid $17,912,500, in consideration for the acquisition, net of a $1,000,000 deposit paid in 1995 and charged to expense. The Bank One Credit Facility currently enables the Company to borrow up to $11 million. The proceeds of the borrowing were used on January 30, 1996 to finance a portion of the purchase price for the Buttonwood Acquisition and repay outstanding indebtedness. The terms currently provide for amortization payments at the rate of $185,000 per month commencing February 1, 1996, with all outstanding principal and interest due and payable three years from the initial borrowing date. Interest is payable, at the option of Company, either at the rate of 1% over the lending bank's base rate or up to 3.75% (based on the principal balance outstanding) over the rate for borrowed dollars by the lending bank in the London Interbank market. The indebtedness is collateralized by first liens on all of the Company's oil and gas properties. The loan agreement relating to the Credit Facility includes various affirmative and negative covenants, including, among others, the requirements that the Company (i) maintain a ratio of current assets to current liabilities, as defined, of not less than 1. 0 to 1.0, (ii) maintain a debt service coverage ratio of net cash flow per quarter to required quarterly reduction of indebtedness of less than 1.10 to 1.0, (iii) maintain minimum tangible net worth at the end of each fiscal quarter of $10,250,000, plus certain percentages of net income and proceeds received from the sale of securities, and (iv) maintain selling, general and administrative expenses per quarter not in excess of the lesser of $1,200,000 or 25% of consolidated net revenues. Material breaches of these or other covenants which are not cured or waived could result in a default under the loan agreement resulting in this indebtedness becoming immediately due and payable and empowering the lender to foreclose against the collateral for the loan. Pursuant to the Preferred Stock Financing, the Company issued and sold 5,540 shares of its 7 1/2% Cumulative Convertible Preferred Stock for an aggregate consideration of $5,540,000, of which $4,250,000 was paid in cash, and $1,290,000 was paid by Quest by exchange of $1,290,000 of outstanding principal amount of indebtedness held by Quest for 1,290 shares. The proceeds were used by the Company, together with the net 10 proceeds from the offering and the Credit Facility, for the balance of the purchase price of the Buttonwood Acquisition and to repay indebtedness and expenses of the 1996 Transactions. The 5,540 shares of 7 1/2% Cumulative Convertible Preferred Stock are convertible, commencing December 31, 1996, into shares of the Company's Common Stock at a conversion price per share of Common Stock equal to the lesser of (i) $2.00 or (ii) a price equal to the average of the closing prices of the Company's Common Stock during the 30 business days prior to the day the shares are converted less a discount of 12 1/2%. The number of shares of Common Stock to be issued on conversion is determined by multiplying the number of shares of 7 1/2% Cumulative Convertible Preferred Stock to be converted by $1,000 and dividing the result by the conversion price in effect. The shares pay a cumulative preferred dividend of 7 1/2% of the stated value per annum payable semi-annually. The shares of 7 1/2% Cumulative Convertible Preferred Stock have no voting rights. In addition, due to the fact that the preferred stock is convertible into the Company's common stock at a discount from market, the Company has computed an imputed dividend of $791,429, which is based on the common stock market value of $2.00 per share at the date of issuance and a 12 1/2% discount. The discount is being accreted as an imputed dividend through December 31, 1996 and accordingly affects income available for common shares. After reflecting the exchange of $1,290,000 principal amount of indebtedness for 1,290 shares of 7 1/2% Cumulative Convertible Preferred Stock in the Preferred Stock Financing, the remaining $560,000 of principal and accrued interest of $173,000 owing to Quest on a note, and other obligations owing to Quest aggregating $92,000 were replaced at the closing of the Preferred Stock Financing with a new subordinated note in the principal amount of $825,000 bearing interest at 7 1/2% per annum, due, together with all accrued interest thereon, ten years from the date it is issued. The $825,000 note was repaid on March 13, 1996. ADDITIONAL ACQUISITIONS - Subsequent to the quarter ending March 31, 1996, the Company signed a purchase agreement to acquire from Comstock Resources, Inc. ("Comstock"), its interest in 164 wells, located primarily in Oklahoma and Arkansas, of which 71 will be operated by the Company. The purchase price is $6.6 million, subject to any closing adjustments. Additionally, the Company has signed a letter of intent to acquire Stratum's 7% royalty interest in the Johnson Ranch properties which was assigned to it as part of the Johnson Ranch Acquisition in consideration for the financing provided. The purchase price is $800,000. In addition, the Company has agreed to reduce to $3.25 per share the exercise price of the warrants to purchase 1,000,000 shares of common stock issued to Stratum in consideration for providing the Johnson Ranch Acquisition financing. Prior to such amendment, the warrants were exercisable at $3.50 per share with respect to 500,000 shares and $4.50 per share with respect to 500,000 shares. The Company intends to fund these acquisitions with an anticipated increase in its Bank One Credit Facility to approximately $17 million. CASH FLOW - --------- Net cash used in operating activities increased to $430,495 for the three months ended March 31, 1996 as compared to net cash used of $351,590 for same period in 1995. This was primarily a result of the net loss of $3,957,156, which includes a full cost ceiling write-down of $5,050,000, a deferred income tax benefit of $2,992,547 and a loss on early extinguishment of debt of $1,432,973 and net changes in operating assets and liabilities. The Company used $17,611,381 of net cash in investing activities for the first quarter of 1996 compared with $3,241,927 for the same period in 1995. This was due to the acquisition of Buttonwood, net of cash acquired, for $17,592,973, and oil and gas well enhancements in the amount of $126,431 and other producing property acquisitions of $220,939. Net cash provided by financing activities for the quarter ended March 31, 1996 was $19,472,637 compared to $3,147,000 provided in 1995. During the quarter ended March 31, 1996 the Company received proceeds from long-term debt of $11,000,000, proceeds from the issuance of common stock of $13,141,368 and proceeds from the issuance of preferred stock of $3,997,430. The Company also used funds of $8,473,258 to pay short and long-term debt during the quarter. CAUTIONARY STATEMENT - Reference is made to the Cautionary Statement for ------------------------ Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation - ----------------------------------------------------------------------------- Reform Act of 1995 contained in the Company's Annual Report on Form 10-KSB for - ------------------ the year ended December 31, 1995, which Cautionary Statement is incorporated herein by reference. 11 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused the report to be signed on its behalf by the undersigned thereunto duly authorized. GOTHIC ENERGY CORPORATION DATE: MAY 30, 1997 BY: /S/ MICHAEL PAULK ----------------- MICHAEL PAULK, PRESIDENT, CHIEF EXECUTIVE OFFICER DATE: MAY 30, 1997 BY: /S/ ANDREW MCGUIRE ------------------ ANDREW MCGUIRE, CONTROLLER 12 EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 1,588,320 0 1,828,864 (70,000) 51,104 3,398,288 24,707,550 (1,396,414) 28,393,914 5,016,486 0 0 277 122,367 13,711,708 28,393,914 1,608,216 1,770,586 0 883,097 406,307 5,050,000 321,545 (5,516,730) 2,992,547 0 0 (1,432,973) 0 (4,170,302) (.43) (.43)
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